The importance of Retirement Planning

Retiring from the paid workforce is one of the most important life changes most of us ever make. So why aren’t more Australians better prepared?

Here are some issues to think about and steps you can take to become truly retirement ready, so you can enjoy the lifestyle you’ve been looking forward to.

Retirement is a time of huge change — emotional, psychological and financial. On the one hand, it’s a well-deserved opportunity to sit back and enjoy the rewards of your many years of hard work, but unless you’re prepared, it can also create enormous stress and uncertainty.

Research from Investment Trends shows that despite investor confidence improving on the back of strong performance from the ASX, 91% of Australians over age 40 had concerns in relation to their retirement.1

The survey found the top concerns had shifted from having enough for essentials to having enough for extras (47%), inflation (43%) and outliving retirement savings (41%). Alarmingly, only 22% of Australians over 40 expect to be able to live comfortably in retirement.

Even with the recent market improvements, concerns like these aren’t surprising. After all, for many of us retirement means a sudden transition from income rich and time poor, to time rich and income poor. It’s a change with both positives and negatives, but it takes careful planning to make it work.

What’s more surprising is that many people don’t have a clearly defined plan. The same research found that 60% reported that despite their concerns, they don’t have a formal retirement plan in place.


The changing face of retirement

Planning ahead has always been important, but now it’s more important than ever.

That’s because Australians are living longer and doing more in retirement. According to the Australian Bureau of Statistics (ABS), an Australian boy born in 2012 can expect to live to 79.9 years, while a girl of the same age can look forward to reaching the ripe old age of 84.3 — around 24 years longer than in 1908, when the age pension was introduced for men over 65.2

Assuming our current crop of two year olds retire at around the 2012 average age of 50 years for women and 58.5 years for men,3 they can expect to spend between 20 and 30 years in retirement — twice as long as a century ago.

And we’re not only living longer, we’re staying fitter and more active than before. Asked what they were looking forward to in retirement, the 40-plus investors in the Investment Trends survey mentioned a huge range of activities, including travel (70%), hobbies (54%), more time with family (48%), exercise (36%), volunteer work (36%) and sports (17%).



The super savings gap

That’s all good news — but it will also cost money, at a time when an aging population is already putting pressure on the government’s healthcare and social security budgets. As the ABS points out, the first Baby Boomers turned 65 in 2011. Over the next 18 years, the proportion of Australia’s population aged 65 or more is projected to jump from 14% in 2011 to 20% in 2030.4

Meanwhile, our increasing lifespans and lifestyle expectations have helped to create a growing super gap. Assuming that most people will be looking to receive a retirement income equal to 62.5% of their final salary, Rice Warner Actuaries have calculated that in June 2013 we had a national super savings shortfall of $727 billion, or about $67,000 for every worker between 25 and 64 on less than twice the average wage.5


What does your ideal retirement look like?

So it seems that many of us have some urgent planning to do. The first step is think about your ideal retirement lifestyle. Where will you live? How will you use all of that new free time? Which assets or investments will you keep for yourself or your children, and which do you plan to sell to top up your super savings?

Most importantly, how much income will you need to make it all happen?

Remember that with a longer time in retirement, most of us are likely to pass through several retirement phases with different income needs. Today’s new retirees are generally fit, active and adventurous, looking to travel the world and throw themselves into activities from golf to surfing, sailing. As a result, some find that they need at least as much income in retirement as they did when they were working.

Later, as the years go by, we tend to become a little more sedentary. Then we start to face increased medical expenses as we work to stay fit and healthy for longer.

Then there are all of those large capital costs to take into account — like a new car every five or 10 years, or house repairs and renovations. Together, it may add up to more than you think.


Crunching the numbers

Next, you need to crunch the numbers, to see if your super savings are on track to fund the lifestyle you’re looking forward to. The Australian Securities and Investments Commission (ASIC) estimates you’ll need a lump sum of $744,000 to fund a comfortable retirement.6

Chances are, you’ll find you need to be saving more. If so, you’re not alone. Most people need to work hard to boost their super in the years leading up to retirement — according to Rice Warner Actuaries, voluntary super contributions more than double as people age. The good news is that there are a range of very tax-effective options to give your super a boost as you approach retirement.

But remember, super laws are complex and everyone’s situation is different. That’s why it makes sense to talk to us at Integral Financial Planning. We can create a personalised plan to help make the transition to retirement easy and stress free so you can enjoy the lifestyle you’ve been looking forward to, without worrying about the future.


Become retirement ready in five steps

1.     Set a target. Think about when you plan to retire, how long you’re likely to spend in retirement, and your ideal retirement lifestyle. Then decide on the income you’ll need to make it all possible.

2.     Crunch the numbers. Check your super savings to see if you’re on track.

3.     Boost your savings. If you need to save more, consider boosting your super with pre-tax salary sacrifice contributions or after-tax personal contributions. We can help you decide on the best approach for your situation.

4.     Consider going part time. Forty-one per cent of Australian workers over 45 plan to work part-time before they retire,4helping to ease the transition from full time worker to full time pleasure seeker. And depending on your situation, you can work part-time, continue to build your super, while supplementing your income with a Transition to Retirement (TTR) Pension, which is generally a lower-taxed income stream.

5.     Change your asset mix. As you approach retirement, you’re likely to want to shift your investments from higher risk growth assets to more conservative income generating assets. But with many Australians now looking forward to an investment time frame in retirement of 20 years or more, it may not make sense to abandon growth assets altogether. Once again, Integral Financial Planning can help.



[1] Investment Trends, November 2013 Retirement Income Report.

[2] ABS, Australian Social Trends, August 2014, Release 4102.0.

[3] ABS, Retirement and Retirement Intentions, Australia, July 2012 to June 2013, Release 6238.0.

[4] ABS, “Population Size and Growth”, Year Book Australia, 2012, Release 1301.0.

[5] Rice Warner Actuaries, Retirement Savings Gap at June 2013, March 2014.

[6] Assumes couple, retiring at age 65 who will live to an average life expectancy of about 85 and desiring a comfortable lifestyle. ASIC Money Smart, August 2014.

Written by

Justin is the Director and Principal Financial Planner of Integral Financial Planning located on the Gold Coast. He has over 10 years of experience if providing Financial Planning Advice and is an Authorised Representative of GWM Adviser Services Limited. He can be contacted on 07 55592250