In years now past, in the days of many of our parents and their parents, you were lucky if your retirement lasted for around 20 years. But with longer life expectancy, people now have as many as 40 to 50 years ahead of retirement, or semi-retirement to plan for.
Through the conversations we have with clients, there is often a concern about the number of decisions that need to be made between now and retirement, and how to ensure a nest egg is going to go the distance.
To simplify the planning process and reduce worry about the future, Perpetual recently developed a checklist of small steps and considerations to keep in mind across each decade. Here is a snapshot of those key steps you should be thinking about, to help ensure your retirement is enjoyable and financially secure.
During your 40s, you are typically at your highest-earning power. Now is the time to ensure you have the foundations in place to set you up for an enjoyable future.
Check your finances
Draw a rough diagram of your existing assets, debts and what might be ahead in the future. Consider what you are saving now and any other passive income to help determine your current financial position. Ideally, visit a financial adviser to help ensure a strategic approach to wealth creation. This is the first step in identifying the steps required to reach your desired retirement lifestyle.
Income protection insurance
This is important in case you cannot work because of an accident or illness. Typically, it protects you from the unexpected and meets your mortgage repayments and other debts to ensure your home isn’t sold out from underneath you.
In your 40s and 50s, it’s likely you may have significant debt. Life insurance can ensure your debt will be repaid in the case you die, meaning your family can maintain their lifestyle without a financial burden. Other important insurances to consider are trauma insurance and total or permanent disability insurance.
A will with a power of attorney and guardianship nominated
Discuss with a financial adviser if appointing an enduring power of attorney might be right for you, something you can only do while you or a family member have full mental capacity – so it’s great to think about it when you’re still relatively young! While a will allows you to decide who you leave your assets to, a power of attorney gives a nominated person the legal authority to look after your affairs on your behalf if you can’t. Power of attorney can refer purely to financial responsibilities, or include broader guardianship powers such as legal, medical or both.
Now is the time to set up a diversified investment portfolio that has a long-term view and takes your risk appetite into consideration. This will eventually help to fund your retirement and ensure you can make the choices you want, not the ones you need to.
In your 50s, it’s prime time for serious planning and an assessment of how your retirement is shaping up. There are many beneficial measures you can take at this point to ensure you have sufficient income for your entire retirement.
Figure out your super
Super remains the starting point for funding your retirement. It’s important to gauge what your superannuation figure will look like at the point of retirement – a number of funds automatically calculate this for you. Your 50s are a good time to make extra contributions if you can.
Death benefit nominations in your super
Superannuation death benefit planning is essential because superannuation entitlements are treated separately from an individual’s will, unless they’re specifically directed to their estate. For this reason, it’s important to make or update superannuation nominations throughout your working years. This needs to be considered and updated in light of your estate plan, or when circumstances change.
Looking up and down the family tree
Estate planning is partly about careful preparation and the smart use of trusts to protect your wealth and family. A relatively small amount of thinking can save your family a lot of uncertainty and emotional angst later. Consider if there are people who need additional care or financial help and raise this with your adviser. The use of trusts is also financially prudent as it can ensure the value of your estate can be maximised through the reduction of tax and other expenses.
Review your investment portfolio
During your 50s it is timely to conduct a full scale review of your investment portfolio. You may have 50 years ahead of you, so ensuring you have an appropriate combination of investments aligned with your risk appetite will help fund your desired retirement lifestyle.
Often our 60s marks a bit of a slow down, with many people choosing to work part time. With some more time to enjoy life, it’s timely to put a few future-proofing measures in place.
Business succession planning
For those who own their own business, a thoughtful succession plan enables a smooth transition to a new owner. Yet many business owners just don’t do it, or do it poorly. You’ve worked hard to build your business, so ensure you have it in the healthiest position to hand over.
At this stage in life, many people start thinking about philanthropic giving. It’s important to assess your options and to choose an approach that best suits you, in order to have the greatest positive impact on the communities and causes you care most about.
Maximise control of time and money in your golden years. It’s a great time to help your children while still protecting your assets.
Gifting an early inheritance
You may want to share your good fortune with your children – and do it before your will kicks in. One way is to establish a trust to hold the assets you would like your children to benefit from. This means you stay in control of the assets, at least initially. Another way is to provide loans to your children – but it’s important to get good advice about the tax and other social security impacts of these strategies.
Property management services
You can save time and toil by outsourcing to service providers who manage some, or all of the properties in your investment portfolio. If you’ve amassed a large portfolio, handing over the management, insurance, valuations, sales, purchases and maintenance may mean you’ve got more time to spend on more important things.
Actualised 80s and beyond
These are your twilight years. Don’t leave surprises behind for your family – ensure they know your plans and introduce them to your financial adviser.
Lifestyle assistance services
Most of us want to stay independent and manage our own affairs for as long as possible. There are wealth management services that can help you reduce the administrative stress of managing your financial affairs. These services can evolve with your needs as you get older, helping you remain independent for as long as possible.
Some services you may want to consider at this point include:
• Managing your share portfolio and taking care of paperwork
• Assisting with medical and general insurance claims
• Paying bills
• Buying and selling assets (based on your instructions)
• Researching and coordinating carers or appropriate supported accommodation
• Coordinating legal matters
When it does come time for you or a loved one to move to a facility, finding the appropriate home can be expensive and confusing. Expert advice can help you manage aged care costs – which can vary depending on the provider, the level of care required and assets and income available. These can be very difficult issues for a family to manage on their own.
Remember, planning for retirement doesn’t need to be complex; you just need to be informed. Nothing is out of the question if you plan it properly. This checklist is a great starting point for a discussion with a financial planner – the first step to the best and most relaxing retirement possible.
Gary Jeffs – Perpetual Private State Manager Victoria and South Australia