Quitting isn’t a dirty word.
There’s no shortage of advice for ways to retire comfortably, yet actually setting yourself up for it can be a different story. For many, the idea of it is pushed to the back of our minds while others a little more prepared. Believe it or not, building wealth to retire financially comfortable is actually simpler than we think. The challenge doesn’t lie in the knowledge – but instead translating that knowledge into results that are meaningful.
Retirement decisions that have an impact on you down the track start early with lifestyle choices that can make your retirement more satisfying. Some want to spend their days playing golf through retirement, relaxing by the pool, traveling around the globe or adventure treks through the mountains. What does a comfortable retirement mean to you? Whether it consists of golf club memberships, living in your dream home or luxury vacations we check out some tips for creating a comfortable retirement.
1. Start thinking about retirement when you start saving
As farfetched as it may sound, it pays to start thinking about your retirement when you get your first start saving. It’s not the easiest thing to do when you’re thinking about your immediate goals but as start to make major financial decisions – a car or home – you should be taking into account how much money you will need for retirement.
Although employees put a percentage away in preparation for this, it’s not always enough for your future needs. The more of your income you set aside for retirement at a young age, the easier it’ll be to retire comfortably. Saving early ensures your retirement benefits from the value of compound interest. Whether you have a pension fund or a self-managed superfund, it does pay to take control of your SMSF investments from the very beginning to ensure your money in growing as quickly as possible. This article from Blueprint Planning provides a great resource about how to manage your super-fund.
2. Have a plan and make goals
The first big mistake people make when it comes to retirement is not having a written plan and retirement strategy for their financial security. The success of your plan results from the small goals and decisions you make each day.
A plan is one thing though – it’s important you create a realistic one with goals that are going to get you there. If you’re currently living a lavish lifestyle drenched in champagne, you’re probably not going to be happy with a beer budget come retirement day.
3. The age you retire matters
How many years do your retirement savings need to provide enough income for? Underestimating life expectancy is another common mistake people can make. Nowadays, it can be safe to assume that at least one spouse will leave to the age of 90 or beyond whereas the life expectancy years twenty years ago was only mid 70’s.
Retirees tend to want to settle down around the age of 62, but there is usually a big difference in the age people say they want to retire to when they actually do. The decision to retire is sometimes made for superficial reasons, like not being happy in your job. Retiring on impulse isn’t a smart move – it’s much more fulfilling to retire toward a life that excites you rather than running from one that didn’t. Always have an exit strategy before you leave to help you retire comfortably.
4. Make your money hard to reach
When your savings are readily available, it makes it an easy solution to the curve balls life will throw at you. The retirement fund soon becomes an “it’s an emergency fund” and before you know it, there’s not much left for you to rely on. Whilst discipline plays a huge factor in this, even the most self-controlled of us are guilty of digging in to the savings when things get tough.
There’s always going to be a good excuse to do it too. Borrowing from your savings account when you’ve lost your job, just to get you by until you find something else – but, it all adds up. Thus, to be a smart investor (and your retirement fund is an investment) it’s vital to put those dollars into a hard-to-access, tax deferred retirement plan.
5. Don’t forget about insurance
Taking out insurance to protect your retirement plan is about applying risk management principals to your personal finances. Types of insurance that should be considered include life insurance, health insurance and long-term care – and can mean the difference between a comfortable retirement and years of heartache.
Risk management is an essential principal of planning for your retirement to insure away all threats you can’t afford to lose. It can play a major role in estate planning, useful for someone who needs home care and makes a dramatic difference in those retirement years. The alternative is not acceptable – and that’s to put your lifetime of hard work at risk for one mistake, accident or health issue.
6. Get a life – an exciting one
When we think about retirement, most of us think about the money we will need. That’s because all retirement dreams need money – to a degree. But there’s more to a comfortable and happy retirement than just money – what about relationships, health and a life that engages your interest and fulfils you?
Money is the means to a good life, not the end so make sure your plan includes investing time into relationships, your heath and things that nurture and build you. Once your financial goals are in place and your retirement plan filled with motivating interests, you’re bound to be one step closer to a comfortable retirement – in all areas!
By Jayde Ferguson, a freelance writer based in Western Australia. Connect with her on Google+ today.
Is one of your resolutions to get serious about your savings? If not, it should be! To help you understand superannuation, Crystal Wealth Partners director John McIlroy explains the top 10 super terms to help your retirement and investment choices.
1. Default option
Refers generally to the investment option you are given when you have your super money paid into an industry fund or retail fund and you decide not to make a specific investment choice.
2. Industry fund
These were established primarily to provide benefits for employees engaged in a particular industry (e.g. building industry). These funds are designed to enable individuals who frequently change jobs within an industry, or have more than one employer within the same industry, to maintain all of their superannuation benefits within the one superannuation fund. Many of these funds have become like retail funds, which means that anyone can be a member, rather than just employees working in a particular industry. Historically, industry funds have provided a low-cost super option with limited investment choices but many are now offering a wider range of investment options.
This is the name given to a new range of simple super accounts that are low-cost and provide limited investment options. There are MySuper rules which any super fund needs to meet to be classified as a MySuper account. Any fund, industry, retail or corporate super fund can provide MySuper accounts.
To ensure that superannuation benefits are used for the primary purpose of the provision of benefits in retirement, the government has imposed provisions that restrict access to amounts held within the superannuation system. These provisions are generally referred to as the ‘preservation rules’. Your age determines when you are able to access your super benefits and most younger people are able to access super benefits from age 60. Older people can access their super from age 55.
5. Retail fund
These are generally superannuation funds, which are ‘open’ for membership to the general public. They are mainly provided by larger financial institutions such as banks and life insurance companies and what they offer can vary considerably from low cost/low choice options to more complex structures which are sometimes referred to as wrap platforms.
If you are entitled to a superannuation benefit you can, regardless of age, transfer all or part of the payment to another superannuation fund. This can occur simply to amalgamate multiple super accounts into one fund while working or can it occur upon retirement to consolidate savings.
7. Salary sacrifice
This is another type of super contribution but rather than being compulsory, an employee voluntarily elects to direct salary or bonuses into super rather than receiving cash. This may provide some tax benefits to the employee over receiving cash remuneration.
Self managed superannuation funds are one of the choices you have for managing your super, along with industry funds and retail funds. SMSFs are often also referred to as DIY superannuation funds. They are super funds with fewer than less than members that satisfy specific control and membership conditions. As the name suggests you can invest your own super through this type of fund, but you have to comply with certain rules. You can also appoint advisers to help you.
9. Super Guarantee
Super guarantee or SG refers to the prescribed minimum level of superannuation contributions required under the Superannuation Guarantee (Administration) Act 1992 to be made by employers on behalf of their employees. Also referred to as compulsory super, these contributions are currently at a prescribed level of 9.25 per cent of salary or wages. Most employees have the choice of having these contributions directed to a retail fund, industry fund or SMSF.
10. Superannuation pension
A pension payable from a superannuation fund which is usually provided by way of monthly payments. There are various types of superannuation pensions available and they are an alternative to taking super benefits as a lump sum at retirement.
Crystal Wealth Partners is a privately owned boutique financial advisory and investment management firm specialising in delivery of services to high net worth individuals and family offices.
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