5 tips for a financially healthy retirement

By Patricia Howard

March 08 2021
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While it is never too early to start planning for your retirement, it is also never too late, with just five simple steps enough to make a big difference to your financial position and ensure you have a better, healthier retirement.

1. Think through how you want to live in retirement

A financially healthy retirement begins with good planning. Think through how you would really like to live your retirement. Don’t be guided by some outdated rule book or how your parents might have lived in their retirement.

Think through what would make you get out of bed each day, feeling positive and optimistic about the day ahead, so that you live each and every day to the full. The answer to this will be different for everyone, but it is an important starting point.

Once you’ve thought this through, determine what your true financial position is. Don’t be overtly pessimistic or optimistic. Try to get a really good understanding of just how much money you have, including the true value of your home. Then think through how you can arrange your financial situation so you can fund the retirement of your dreams.

2. Investigate whether you will qualify for the Australian age pension

In planning for retirement, many people overlook whether or not they may be eligible to receive the Australian age pension. This is a big mistake. If you do qualify for the age pension, it can make a big difference to your retirement and obviously remove a lot of financial pressure.

Once you qualify, you can’t lose it, its indexed for inflation and it will last as long as you do. It is in effect your long-lost half million dollar nest egg, so it is important for you to understand whether or not you qualify for it.

Then you can use your superannuation savings to provide a second income stream that will top up your pension entitlements and ensure that you really do make the most of your financial situation.

3. Maximise what you have in superannuation

Too often, people think they need to have a million dollars in super to retire comfortably. While that’s a nice goal to have, too often it just prompts people to give up on their superannuation.

They think they will never have a million dollars in super, so why bother putting any money into super. In preparing for retirement, you should try to squeeze every spare dollar you have into super.

For every $100,000 you do have in super, if invested sensibly, you can expect to generate a tax-free income stream of $6,000 a year or $500 a month. That will make a big difference in retirement.

So, if you and your partner qualify for the age pension and save at least $100,000 each in super, this means you can expect to generate $1,000 a month in addition to receiving the age pension and that will make a big difference in retirement.

4. Make sound investment decisions

While all of that might seem obvious, it’s worth focusing on because it will stop you from making poor investment decisions in your retirement and help you focus on solid reliable income-generating investments.

Too often, people feel that they don’t have enough money saved for retirement, and this prompts them to go looking for investments that will generate significant income or strong capital gains.

This inevitably pushes them into to placing their precious, irresistible retirement savings into high-risk products and all too often they end up losing a large chunk, if not all of it. This is one of the key reasons people run out of money in retirement.

5. Live within your means.

Then most importantly, once you’ve sorted out your financial investment, know exactly how much money is coming in each year and make sure to live within your means. This is particularly important if you are receiving an income streams from your own investments.

Living off the income of investments is very different to living off a way or salary. There will be good years and bad years, and the income being generated will vary accordingly.

Make sure you adjust your spending, so in poor years, you spend a little less and wait for better investment years to do that much-awaited holiday. If you do this one step, you will never run out of money in retirement.

Patricia Howard is a licensed Australian financial adviser and author.

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