5 retirement derailers and how to avoid them
The business of working life means retirement can sneak up on us. For the unprepared, the speeding train can quickly fall off the tracks – with potentially devastating consequences.
Thankfully, if you know what to look for and how to prepare, you can reach your retirement destination safe and sound:
- Failing to plan
Failing to plan means planning to fail.
Ideally, you haven’t put off having a spending and investment plan until now. So, what’s needed is to update that plan.
Your update should cover:
- When will you stop working? Will it be gradual? What about your partner?
- How will you fund your retirement? How much will you need? How often?
- Your eligibility for a full or part age pension? (Remember, the family home isn’t means tested, so you may be eligible even without realising it!)
- Any benefits/payouts you’re entitled to and what to do with them – e.g., bonuses, share options, proceeds of a business sale.
- New and changed living costs in retirement – new hobbies, extra travel, higher energy bills from more time at home.
- Poor super strategy
Superannuation should never be set-and-forget – before or in retirement.
Before retiring, look at maximising your super’s value – including spousal contributions and co-contributions for low and middle-income earners. There are loads of other strategies too. This money gets invested for faster growth, while delivering you tax concessions now.
Then determine how and when to begin drawing from it. Avoid the temptation to go big and risk blowing it all early, leaving nothing to support you in your later years. Check in regularly to ensure continued growth – potentially even offsetting what you’re withdrawing as income.
- No stable home
"Older households that were not able to access or sustain home ownership when they were younger are more likely to face high housing costs in their retirement than similar households who are home owners," a Parliamentary paper notes.
The family home is effectively our only tax-free asset (save for buyers’ stamp duty). Its equity can be leveraged to fund other income-producing investments – property rents, share dividends etc. Or it can be sold, allowing you to downsize comfortably and still have money left over.
Home ownership also offers stability when you need it most – moving is more cumbersome as your years advance, plus securing rental accommodation is usually harder when you’re no longer working.
It needn’t be much, but owning property keeps many doors open to you in retirement.
- Inadequate estate planning
There are two major mistakes around estate planning:
- Not having a current will: Devising a will is generally simple and not expensive. So don’t put it off. If you do have one, when was it last updated? Does it reflect your current circumstances – relationships breakdown, remarriage, children/stepchildren, grandkids? If not, you could inadvertently lavish your ex or overlook loved ones.
- Undeclared beneficiaries: Contrary to popular belief, wills don’t cover everything. Superannuation, businesses, trusts etc. are treated separately, requiring you to nominate beneficiaries within their structures. Not doing so can lead to disputes or the government becoming your primary benefactor.
Work with your team – lawyer, financial adviser and accountant to ensure your estate planning is done tax effectively and your loved ones won’t see their inheritance gobbled up in tax or other costs.
- Insufficient protections
Just because you are or soon will be retired, doesn’t mean you don’t need protections. Arguably, you need them even more.
- Revisit insurances: Can you get retiree discounts/better coverage? Are any new assets you purchase covered – boat, caravan, artwork? Business/professional insurances may no longer seem relevant, but ensure they really aren’t needed before cancelling them – once they’re gone, you won’t get the same cover at the same price again.
- Guardianships/power of attorney: We never know what’s around the corner. Explore legal provisions should you become ill, disabled or otherwise unable to make decisions over your affairs or for children/dependents in your care.
- Social connections: Retirement can be lonely as you cease seeing colleagues daily. Memberships to sporting, crafts, automotive, gardening, and other clubs are good for maintaining social connections. Spend more time with family and friends too, but remember – they may not have as much free time as you do.
Retirement should be enjoyable. Yet by not planning ahead, your twilight years could run off the rails. Investing a little time and effort now is sure to pay big dividends during your twilight years!
Helen Baker is a licensed Australian financial adviser and author of the new book, On Your Own Two Feet: The Essential Guide to Financial Independence for all Women (Ventura Press, $32.99). Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
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