10 Tips to Financially Plan for a Comfortable Retirement

Financial Advisors Perth | Empire Financial Group

Raymond P

MD Empire Financial Group

Raymond is the founder and Managing Director of Empire Financial Group, and a Responsible Manager of our Australian Financial Services Licence, EFG Advice Australia.

Retirement planning can be complex and challenging. Unfortunately, what you may have once thought was going to be enough to retire on may no longer be enough. According to the Association of Super Funds of Australia (ASFA), the cost of a “modest” retirement lifestyle exceeds Australia’s aged pension by about $4,000 each year, and a “comfortable” lifestyle costs around $20,000 more.

Australians are also living longer, which means we’re spending more time and money in retirement.

This likely explains why most Australians fear they don’t have enough to retire comfortably.

The good news? Most people with a decent income can leave this fear behind – provided they start financially planning for retirement at the earliest opportunity.

How to financially plan for retirement

There’s a good chance that a comfortable retirement is within your reach. But it doesn’t happen overnight or by chance. Peace of mind comes from following a tailored financial strategy plan for years, ideally decades.

Here are a few tips to help you plan for a comfortable and secure retirement.

1. Start early

The earlier you start saving for retirement, the more time your investments have to grow. Between compound interest and superannuation earnings, even a small amount saved each month will add up over time.

A good rule of thumb for retirement planning is to put aside 10-15% of your pre-tax income starting in your early 20s. However, we know most Australians don’t think about retirement in their 20s, or even 30s. So it’s a good thing Australian employers are required to contribute 11% of their employee’s regular income to superannuation (the superannuation guarantee, or SG).

Over time, superannuation builds a base for retirement planning. Older Australians who are only now thinking about retirement still have options to secure a comfortable future. You just need the right strategy and a good team.

2. Set realistic goals

Clear goals will help you calculate how much you need to save for retirement. To determine your goals, think about:

  •       The age you want to retire
  •       Specific lifestyle factors you aspire to
  •       Potential living situations
  •       Dependents and partners
  •       Post-retirement travel plans
  •       Assets you want to hold

Working backwards from these goals will help you establish a base case. Of course, you will want to aim higher to ensure you’re living on more than the bare minimum and can enjoy your well-deserved retirement.

3. Understand your super situation

On 1 July 2023, the SG rate rose from 10.5% to 11%. It’s scheduled to rise again to 12% on 1 July 2025.

This contribution grows through the wonders of compound interest and investment returns, and there is no age limit, meaning interest accrues even during retirement.

As good as the system is on paper, there is a reason for the SG rate rise. Australians simply were not retiring with enough to be comfortable and independent. While the increase from 10.5% to 12% will help, the little changes you make over the years will go further to ensuring your comfort later.

This is the difference between active and passive investing, and it will make all the difference come retirement. Working with an experienced financial advisor helps you grow out of a one-size-fits-all retirement strategy and maximise your chances of living comfortably.

4. Seek expert advice

Now that you understand your foundation and have clear goals for retirement, it’s time to consult with a financial advisor specialising in retirement planning.

Wealth creation is complex. Beyond the basics like risk tolerance and asset allocation, financial planning for retirement requires a detailed strategy and deep knowledge of financial instruments.

Everyone’s situation is unique. Working with a financial planner gives you peace of mind that your retirement is secure and you’re making the smartest moves in the years leading up.

5. Diversify your assets

There is no one-size rule for how to financially plan for retirement, and most financial advisors will recommend evolving your asset allocation strategy as your situation changes.

Still, diversification is generally considered important for managing risks and maximising returns. Consider a mix of asset classes such as shares, real estate, bonds and cash to spread risk and achieve long-term growth.

The shape, risk profile and asset mix depend on individual circumstances. For example, someone approaching retirement may look to stabilise their portfolio with allocation to high interest bearing cash, bonds and blue chip shares. In contrast, younger Australians with a higher risk appetite could have a higher allocation to growth assets like shares instead.

6. Review your plan regularly

Your needs and goals will likely change as you approach retirement. So too will the regulations, benefits and tax breaks that affect how you financially plan for retirement.

Be sure to review your plan and portfolio regularly with your financial advisor to make sure you are still on track.

The right retirement planning team will help you maximise contributions in the years –hopefully decades – leading up to retirement, giving you a greater chance of retiring with enough to live comfortably.

7. Plan for the unplanned

Unexpected expenses can happen to anyone, even in retirement. It is important to have a financial cushion to cover unexpected costs, such as:

  •       Medical bills (yours or your partner’s)
  •       Family emergencies
  •       Property repairs and renovations
  •       Economic events outside your control
  •       Unforeseen tax bills

Although we don’t like to think about it, planning for the day when you are unable to make decisions is also wise. Whether that means medical expenses or estate planning, ensuring your loved ones aren’t financially burdened is an important part of financial planning for retirement.

8. Watch out for lifestyle creep

Lifestyle creep is a lurking threat, especially for high-income earners. Incidental spending that was once considered a luxury can over time become the norm and seem like a need

What we once thought would be enough to retire on becomes an ever evasive target as our lifestyle ratchets up at a rate that outpaces our retirement savings.

The top 10% of income earners, in particular, need a well-modelled plan to ensure lifestyle creep doesn’t affect their ability to live comfortably well into retirement.

You can read more about the corrosive potential of lifestyle creep here, including a by-the-numbers breakdown to help financially plan for a retirement funded by passive income streams.

9. Consider healthcare costs

Healthcare expenses tend to increase in retirement. Australia’s public health system is one of the better examples worldwide, but you should still expect out-of-pocket expenses.

Ensure you have a plan for covering medical costs when you are no longer working. You may want to consider purchasing private health insurance to supplement Medicare, especially if you find a scheme that covers specific pre-existing conditions.

It’s a good idea to overestimate healthcare costs, as this will avoid passing the burden onto someone else.

10. Take advantage of entitlements and benefits

Tax structures, trusts, pension funds, franking credits: most people glaze over just reading about financial instruments. But understanding how these affect your financial position – and how to maximise your position accordingly – can be a boon when financially planning for retirement.

Australia’s tax system means that the ownership structure of your assets will significantly impact your potential retirement income.

This is where a knowledgeable financial advisor becomes a valued partner in retirement. By planning ahead and directing assets to the right structures we can help you get more from your nest egg than you may think is possible.

Are you ready to retire comfortably?

Regardless of where you are in life, thinking about your golden years is a good move. The earlier you can begin financially planning for retirement, the better time you will have once the working days are done.

However, starting early isn’t the only way to secure a comfortable retirement. By working with the right team and implementing good financial habits, you can use the assets and opportunities available to you to achieve your retirement goals.

Empire Financial Group will get you there. We invite you to get in touch for personalised advice from Perth’s leading retirement advisors.

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