Dream & Design The Next Stage Of Your Life
Is retirement looming? Kate McCallum and Julia Newbould list the seven questions you need to consider before retiring.
1. When do you want to stop working?
Some people cannot wait to hang up their boots, while others enjoy what they do so much that they want to continue for as long as they can. If you’re part of a couple, it’s not unusual for one partner to want to finish work sooner than the other.
2. Do you want to dive in or glide?
Many people want a clear divide between work and play. Others prefer to gradually transition from full-time work to full-time play.
3. What do you want to do with your time?
If you’ve been used to the structure of work, without a plan to fill your days, stopping employed work can be challenging. What will you do to enjoy your time and feel fulfilled? Maybe you’ll spend time travelling, volunteering, pursuing hobbies, minding grandchildren, spending extra time with family and friends, improving your fitness. If new hobbies or travel are not your thing, consider mentoring or getting involved with new business startups. Beyond the day-to-day, identify the things that are on your bucket list. What are the big-ticket items that you want to achieve? Make a list of your top three priorities. If you have a partner, ask them to do the same. Write a letter to your future self to remind them of the things you want to achieve. Be purposeful so you feel fulfilled and don’t forget your dreams.
4. Where do you want to live?
Do you want to stay put when you retire or move to a new house, a new area or a new region? Some people move to free up capital to live on, whether it’s to a smaller house or a regional location. Some move to enjoy a more relaxed lifestyle, or a change of climate. Some shift to be closer to family, particularly once grandchildren arrive on the scene. Consider proximity to family and friends, transport and services and factor it into your plans.
5. How much will it cost?
If you’ve identified your ideal plans, it’s time to work out what you will need to achieve them. Start with your day-to-day cashflow. Think about how your current costs will change when you are no longer working then add in the costs for the new activities you’d like to do. Make sure you also consider the bigger-ticket items you want to plan for – travel, renovations, the occasional new car and those special things on your bucket list. It is helpful to use the Association of Superannuation Funds of Australia (ASFA) retirement benchmarks as a guide. According to ASFA, a modest retirement is one where you can afford essential living expenses. You would be able to have some holidays within Australia, and while you can upgrade cars, appliances and electronic items, it would be an occasional and careful purchase.
Most of us are probably thinking we’d like a few more creature comforts. A comfortable lifestyle is one where you can enjoy some of life’s little luxuries like occasional international travel and dining out every week. The ASFA Retirement Standard for a comfortable lifestyle includes participating in sports or hobbies, being able to afford private health insurance and buying things like new white goods, a nice car from, electronics and good clothes.
6. How much money will I need as a lump sum?
It is essential to know how much you’re likely to need as a lump sum to meet your annual expenses – and to know how you’re tracking – so you can plan for a comfortable retirement. Working out how much money you will need in retirement is not a simple calculation, as things like your investment returns, your drawdown patterns and how long you’ll live need more than a calculator – they need a crystal ball! A useful guide is provided by ASFA’s Retirement Standard. ASFA suggests that for a “comfortable” retirement, single people will need $545,000 in retirement savings, and couples will need $640,000. Of course, if you have additional expenses each year than ASFA estimates, you’ll need a bigger amount. And if you expect that you’ll live longer than most your age, then that will bump up your lump sum requirements, too.
7. What’s your back-up plan?
Life is full of surprises, not all of them happy ones, which is why it’s important to think about your back-up plan and how you will manage any income or asset shortfall. Consider these examples: Dianne had one of these when her 30-something son had a serious accident, couldn’t work for six months and needed ongoing medical care and therapy. He had no private health insurance or income protection, and so she needed to pay the bills. Sandra found herself caring for her nephew when his parents died in a car accident. She and her husband had sold their business and were planning to travel. Fortunately, there were some funds from her sister’s estate, but it was going to be a stretch. When what you have turns out to be not enough you need to look at options such as reducing your expenses and increasing your income.
This is an edited extract from The Joy Of Money by Kate McCallum and Julia Newbould, Bauer Books.
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