However, some circumstances can derail these plans by forcing a person to retire earlier than expected. Since most people prepare for their actual retirement deadline, those who still don’t have enough in their superannuation funds are caught off-guard from unexpected changes.
This only shows that pre-retirement planning is just as important as visualising and plotting out the actual retirement stage.
What is pre-retirement planning?
Pre-retirement planning aims to help a person adjust for retirement while still employed, and up to their last day of work. It may also merge with the actual retirement phase as its initial stage.
Pre-retirement planning is necessary to financially and mentally prepare for the big day and soften its impact on the retiree. After all, retirement could mean that retirees will no longer be busy with daily work, having more free time than they know what to do with—or at least after a while.
Most people focus on topics such as increasing superannuation balance, downsizing property, insurance and aged care when discussing retirement.
These are very important things to consider, but the transition to retirement phase also requires careful financial planning—and, no, it’s different from the transition to retirement income stream (TRIS).
What makes pre-retirement planning important?
Retirement plans typically focus on what kind of retirement a person wants and how much money they will need to achieve it. Pre-retirement plans focus on what they want to do and how to adjust their lifestyle in the months or years leading to retirement.
Think of it this way: if working life is a leg race and retirement is the finish line, it makes sense that abruptly stopping movement the moment one foot crosses the line could cause stumbling and falling.
A person needs to slow down as they approach the finish line or continue to run past it at a decreased pace to adjust for the next phase. This ‘cooling down’ stage is pre-retirement.
A person’s circumstances may change as they age and get closer to retirement. When situations change, plans must also be adjusted accordingly. They need to consider if their retirement plans still fit their current circumstance or if their priorities and goals have or must change.
What are some things to consider when creating a pre-retirement plan?
Retirement is not really predictable and many do not get the luxury of retiring as they had planned.
However, having a pre-retirement plan in place could allow them to reassess and adjust their lifestyle to transition more smoothly.
Financial advisers believe that it’s best to get started with pre-retirement planning at least 10 years before the actual retirement.
Some of the things that everyone should consider in their 50s or, at the very least, 12 months before their retirement day are:
- A wealthy retirement is not (just) about the money
- How to take control of your financial well-being
- Sort out priorities and passions
A wealthy retirement is not (just) about the money
The superannuation system encourages Australians to financially support their own retirement through employer guaranteed contributions, salary sacrifice and selecting tax-effective super investments.
However, it is important to consider that a wealthy retirement does not simply mean having a fat savings account or a larger income stream. It is also about developing a stable emotional, physical and mental well-being for a person’s senior years.
Individuals should keep their health in check and consider finding other interests that would prevent them from feeling useless once their employment ends.
How to take control of your financial well-being
Can pre-retirees actually get by with their estimated retirement income?
Depending on their super’s balance, the retirement income stream that retirees receive may be lower than the amount of money they actually live on during their employment years.
To determine whether they can survive on the smaller amount, pre-retirees need to test the new lifestyle by trying out the budget. Consider lowering expenses or improving lifestyle choices, where necessary, for at least 3 months.
If it seems impossible, consider doing a salary sacrifice and max out contributions to super until the last payout. As a last resort, push back the expected retirement date.
The years leading to retirement is also the best time to knock back all debts so that you don’t have to worry about paying for them using retirement income.
Sort out priorities and passions
By sorting out priorities, pre-retirees would be able to remove unnecessary expenses in their lives and determine whether a smaller income would suffice in retirement.
Likewise, finding new passions or rekindling old ones can help make a person’s golden years more fulfilling. Those who really love their profession may also continue to do it part-time or find another way to use this passion in other sectors.
Pre-retirement plans are not necessary… they’re important
Does everyone have to draw up a pre-retirement plan? No, it’s not a requirement and no one can force a person to do so if they do not wish to.
It is, however, important so that they don’t get overwhelmed with the differences in their lives before and after retirement.
A fulfilling retirement would depend on a person’s self-worth, an identity that is not just their career and their ability to control their finances. Drawing up a pre-retirement plan and implementing it early on may help manage expectations and improve retirement lifestyles.