When Should You Start Planning For Retirement?

Young people planning retirement.

Many of us have a few wishes for our retirement. You may want to travel the world, reside where you can be active in your children’s and grandchildren’s lives, or retrain to try a different career.

Whatever an ideal retirement looks like to you, planning to make it happen is an absolute must. Each year, roughly 140,000 Australians retire; unfortunately, some are woefully unprepared and struggle to maintain a modest lifestyle.

It is not uncommon to hear experts say you should begin financial planning as early as possible. The same advice is true for retirement planning. Starting when you are younger can make the saving process more manageable, especially if you have fewer responsibilities such as children, mortgages, and the like. However, you will never be younger than you are today. Voluntary contributions to your super are an excellent way to ensure a comfortable future regardless of your current age.

Preparing for retirement is vital if you want to live comfortably and enjoy this phase of your life. Before you begin the financial planning phase, you should ask yourself a few questions to get going in the right direction.


Five Questions to Ask Yourself Before Retirement Planning

  • Do I want to stop working or continue in a part-time position?
  • Where do I want to live?
  • What does my ideal lifestyle look like?
  • Do I want to fund an inheritance?
  • Should I prepare for aged care?


What is the Best Way to Plan Your Retirement?

Once you have an idea of what you would like your retirement to be, you can start digging into the nuts and bolts of the planning process. Several points are vital to your preparations. These include:

  • What age can you retire? This question refers to a pair of ages:
    • Preservation Age – The preservation age is when you can access your super fund. Additionally, you must also be retired or after the age of 60 or have turned 65.
    • Qualifying Age – The qualifying age is how old you must be to apply for the Centrelink age pension. In addition to meeting the age requirement, there are residency requirements and a means test to ensure payments go to those with the greatest need.
  • Where will you live? – The dreams of jetting all around the world or relocating to a fabulous destination appeal to many workers considering retirement. Others think about downsizing as a way to save money and simplify life. Having a location in mind is necessary so you know how much money you will need to cover the costs of living. Other essential costs of living you should work out include:
    • Housing
    • Utilities
    • Food
    • Clothing and household items
    • Pets and their care
    • Leisure activities
    • Health
    • Transportation
    • Gifts and holidays

Staying realistic is vital when you are determining your cost of living. A common mistake many people make is convincing themselves they can be happy in a Spartan existence. This idea usually deteriorates after a short bit of time spent eating uninteresting food and having only the television for entertainment.

A helpful suggestion is to anticipate needing around two-thirds of your pre-retirement income to maintain your lifestyle. This figure assumes you have no mortgage payments, heavy debt, or other significant expenses.

  • Your present financial position – Are you carrying a load of debt, just scraping by, or living a modestly comfortable life? You can see changes you might consider before retirement by analysing your finances. You will also learn if you have money available that you can contribute to your superannuation before you retire.
  • How long you may be retired – Thinking about the topic of how long you will need to rely on your retirement income can be uncomfortable. No one enjoys considering their mortality and certainly cannot predict retirement’s length. People are living well into their 80s and beyond, so if you retire in your 60s, you should plan on at least 20 years’ worth of retirement income.
  • Plan (and save) for the unexpected – Keep a separate fund for emergencies so you can easily access money when you need it. Whether you need to pay for home repairs, surprise medical costs, or an unplanned large purchase like a car, being able to draw from a source apart from your day-to-day accounts will help keep your retirement finances on track.

Senior couple with financial adviser.


How Much Will I Need to Retire?

While nearly every person considering retirement asks this question, there is no single figure to answer it across the board. This is partially because the answer to this question is tied up in the plans you make for your retirement.

March 2023 figures from the Association of Superannuation Funds of Australia’s Retirement Standard, or ASFA, offer ballpark figures of required yearly income for retirees to sustain comfortable and modest lifestyles.

A comfortable lifestyle includes the financial ability to afford top-tier private health insurance, a newer car, occasional dining out, leisure activities, and annual holidays.

  • Single Retiree- $51,000 a year
  • Retired Couple- $72,000 a year

A modest lifestyle includes basic private health insurance, an older model car, rare meals out except for inexpensive establishments, infrequent leisure activities limited to low-cost or free activities or an occasional trip to the cinema, and one domestic holiday and short breaks near home.

  • Single Retiree- $32,400 a year
  • Retired Couple- $46,600 a year

Remember, these are approximations and presuppose retirees are in good health, with no mortgage payments and little to no debt. Additionally, financial markets are unpredictable.
This changing economic landscape highlights the wisdom of working with a trusted financial planner who can assist you in preparing for a sustainable retirement.


What Retirement Income Is Possible for Me?

When it comes to possible retirement income, there are three sources primarily available to Australian retirees. These are:

  • Your Superannuation – The funds you have built up during your years in the workforce will be a significant source of retirement income. This is why your voluntary contributions play a vital role in preparing for your future. Even small additions will add up over time, so do not miss the opportunity to build for your retirement.
  • Australian Government Age Pension – The age pension is a regular fortnightly payment that can supplement your income if you qualify. You must meet the age, residency, and asset requirements to receive age pension payments.
  • Personal Assets – Regardless of the amount of your assets, they can still bolster your retirement income.

You also have the option to continue to work and slowly transition into retirement. In many cases, you can open a Transition to Retirement (TTR) income account alongside your super.


Check Your Insurance Cover

Your insurance requirements change as you get older. This is why you need to review your coverage with insurance professionals like those at Grace Insurance.

It is worth your time to see if occurrences like a change in your relationship status, starting a risky hobby, or your children moving out on their own altered your insurance needs. You may also want to explore other types of cover, such as:

  • Life Insurance
  • Income Protection Insurance
  • Total and Permanent Disablement Insurance

Making sure your insurance coverage is what you need can give you peace of mind as you move towards retirement and beyond.

Preparing for your retirement may seem daunting, but it is necessary to ensure that you will have the required resources to enjoy the lifestyle you want. You do not have to work this out on your own. The financial experts at Grace Life and Wealth have the knowledge and experience to guide you through the decisions necessary to put yourself in the best possible position when it is time to retire.


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