Key Points
- There are three phases of retirement: the early (active) phase, middle (passive) phase and late (frail) phase.
- Saving is a rewarding habit. If you’re not saving for later life yet, it’s time to get started.
- Make a contribution to your company’s retirement savings plan.
- Consider the fundamentals of investing.
- Don’t compromise with your retirement funds.
- If your company does not have a retirement plan yet, request that one be started.
Are you saving enough for retirement?
It’s easy to put off saving for age, but it’s important. If you don’t have enough saved up, then your savings will decline each year and your money could be lost before it has time to grow.
Retirement is something that we all hope to one day achieve. It would be a great achievement for most people to have enough saved up so that they don’t think about retiring in their later years. Unfortunately, saving money for retirement isn’t as easy as you may think. Therefore, it is important to plan and prepare for retirement financially.
Planning for Retirement
Financial security doesn’t just happen. It takes planning and commitment and, yes, money. Insufficient funds show the importance of planning for the three phases of retirement: the early (active) phase, middle (passive) phase and late (frail) phase.
Roy Morgan research conducted in the twelve months to January 2019 shows more than 430 thousand Australians will retire in the next 12 months with an average gross wealth of $299 thousand – much less than the $545K recommended by the Association of Superannuation Funds of Australia (ASFA).
With pressures on the Age Pension and additional uncertainty coming from a weakening property market, potential changes to superannuation legislation and general share market volatility, the need for Australians to plan for later life has never been greater.
Director of Aged Care Steps, Louise Biti, says it is essential for everyone to consider the three phases of retirement.
‘When talking about retirement, we ask people to think about the care-free years, the quiet years and the frailty years – when health issues associated with living longer mean we are likely to have some level of dependency on others.’
Ms. Biti describes the average income required at each phase and cautions against the common misconception that the cost of living declines after you retire.
‘It’s really more of a U curve’ she explains. ‘Higher care needs in later life mean increased costs.’
While there is considerable government-subsidised aged care available in Australia, living well in all phases of retirement is about maintaining choice and control – especially in later life.
‘Australians are guaranteed a minimum quality of care through government-funded aged care,’ she says.
‘But the quality of life when you retire requires careful planning and professional advice.’
Here are 5 ways to prepare for retirement
Start saving, keep saving, and stick to your goals
Saving is a rewarding habit. If you’re not saving for later life yet, it’s time to get started.
Make a contribution to your company's retirement savings plan
If your employer offers a savings plan, such as a 401(k) plan, sign up and contribute all you can. Your taxes will be lower, your company may kick in more, and automatic deductions make it easy.
Consider the fundamentals of investing
How you save can be as important as how much you save. Inflation and the type of investments you make have a big impact on how much money you’ll have saved when you retire.
Don't compromise with your retirement funds
You will lose principal and interest if you withdraw your funds now, and you may also lose tax benefits or be subject to withdrawal penalties.
Ask your employer to start a plan
If your company does not have a retirement plan yet, request that one be started. Your company may be able to put together a simplified plan that will benefit both you and them.
Putting money aside when you retire is a habit we can all live with. Make an appointment with your adviser today to discuss your retirement planning needs.
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