Financial planning strategies to enjoy a worry-free and fulfilling retirement

Posted on March 15, 2024

If you haven’t done so already, now is the time to ensure that your finances are effectively managed so that you can relax during your retirement. By actioning effective strategies with your financial planner and managing your resources wisely, you can set aside any financial worries and enjoy your day-to-day retirement life.

Retirement Income

How much do I need?

Compared to previous generations, Australians can now look forward to a much longer and more active retirement than past generations. A typical retiree will spend 23 to 25 years in retirement, depending on their gender. The amount needed to enjoy a long and happy retirement will be different for everyone. It depends on what retirement looks like for you as an individual, so it’s important not to get caught up in the big numbers that are usually talked about for retirement. With the help of your JSA financial adviser, we can help you calculate your potential future income, set a comfortable budget, and look into retirement income diversification.

Accessing my retirement income

In addition to any potential Age Pension entitlements or non-super investments like retained properties generating income (e.g., rent), the most common method of providing for your required level of retirement income is with one or more regular retirement income streams, such as:

  • Account-based (allocated) pensions – exclusively purchasable with your super savings
  • Lifetime or term annuities – obtainable with either your super or non-super savings

Depending on your situation, the best strategy for securing your retirement income may involve a combination of an account-based pension and an annuity, and your JSA financial advisor will be able to discuss which of these approaches is best for you.

An account-based (allocated) pension allows you to receive regular and flexible pension payments from your super balance. The balance of your pension account is subject to adjustments based on market fluctuations, investment returns, pension disbursements, lump sum withdrawals, and associated fees.

An annuity usually requires swapping a portion of your retirement savings for a secure income stream that is paid out over a designated period or for the duration of your life. A fixed-term annuity ensures a guaranteed income for a specified period, while a lifetime annuity provides a guaranteed income for the entirety of your life.

Retirement budgeting

With the help of a JSA financial planner, we can begin creating a detailed budget that outlines your projected expenses. Within the budget, we also factor in funds for travel, hobbies, unexpected costs, and other activities for a more holistic approach. Creating a realistic budget that aligns with your retirement lifestyle goals helps you stay focused on living within your means. By regularly reviewing and adjusting your budget as needed we can help you can maintain your financial stability throughout your retirement.

Retirement income diversification

For some retirees’ pensions can form the bulk of their income but it is worth considering diversifying your retirement income. Explore additional streams such as dividends from investments, part-time work, or rental income. The right combination of retirement income streams will vary depending on your unique requirements and circumstances, including:

  • Your fixed and variable income needs during retirement
  • The potential necessity of accessing a portion of your retirement savings as a lump sum in the future
  • The significance of qualifying for social security benefits like the Age Pension
  • Your estate planning goals, including the desire to leave an inheritance to your dependents
  • Your risk tolerance in investment

For instance, one strategy could involve utilising a lifetime annuity to secure guaranteed income (in addition to any entitled Age Pension) to cover fixed income needs in retirement. Concurrently, flexible payments from an account-based pension could be used to address discretionary spending. Diversifying your approach allows you to “weather the storm” against economic fluctuations and ensures the continuity of a comfortable lifestyle.

Retirement Planning and Tax

The taxing of income from superannuation funds is dependent on your age. Once you reach 60, any benefits received become tax-free. However, you may have to pay tax on your super income stream if you opt to access your super earlier. To access the income, you need to reach your preservation age between 55 and 60 years, depending on your date of birth.

Reducing your taxes after retirement involves understanding how tax implications apply to your specific circumstances. For many retirees, a significant portion of their retirement income will be derived from superannuation funds, which typically will consist of both a tax-free component and a taxable component.

Tax-free withdrawals are typically from your after-tax contributions. This includes personal contributions made from your after-tax earnings unless a tax deduction was claimed for them.

Taxable withdrawals are typically from your before-tax contributions. This includes superannuation contributions from your employer, any salary sacrificed contributions, and, as mentioned above, any superannuation contributions you claimed as a tax deduction.

The amount at which each component is calculated depends on the time of the withdrawal. For the most part, your superannuation benefit will incorporate both tax-free and taxable components. Upon withdrawing funds, your superannuation fund will determine the breakdown of the withdrawal by considering the percentage of each component in relation to the overall value of your super account.

Our aim at JSA is to find ways that enable you to optimise your retirement income by minimizing tax obligations. Our financial planners may utilise several strategies to reduce post-retirement taxes, and this is where our individually tailored approach works best. Efficient strategies for reducing taxes on your retirement income can be extremely hard to navigate and one innocent mistake could take years off your nest egg. Unless you are an expert yourself in these areas, it’s best to leave it to the experts.

Retirement Investment Advice

Seek professional investment advice from a financial advisor to maintain healthy cash reserves and develop a diversified portfolio that suits your risk tolerance and financial goals. An adequate cash reserve helps provide a safety net for unexpected expenses, so you won't have to dip into your long-term investments prematurely. Your JSA financial planner can offer a mix of low-risk investments, such as bonds or fixed deposits, and higher-risk investments, such as stocks or mutual funds. With regular monitoring and adjusting your portfolio to adapt to changing market conditions, we can help you get the most out of your retirement investments.

Government Benefits and Age Pensions

Retirees often have access to various government benefits, such as the Age Pension, and it's important to claim what you're entitled to. The type and number of benefits you can receive depends on your personal and financial circumstances and your stage of life. Your financial advisor will keep up to date and informed regarding any changes to Centrelink, Medicare, Service Pension, and other programs that may impact your benefits and bring these to your attention. Your financial advisor who specialises in retirement planning will make sure you are receiving what you are entitled to.

Pensioner concession card

Receiving an eligible income support payment, such as the Age Pension or Service Pension, automatically qualifies you for a Pensioner Concession Card. With this card, you gain access to various benefits, including discounted medicines through the Pharmaceutical Benefits Scheme (PBS). Additionally, cardholders enjoy concessions on water rates, energy bills, property rates, telephone allowances, public transport fares, and motor vehicle registration costs. Depending on your financial institution, you may also be eligible for a low-cost banking account.

Commonwealth seniors card

If you’re not eligible for the Age Pension, possibly due to the Australian Government’s assets and income tests, you might still qualify for the Commonwealth Seniors Health Card (CSHC). This card extends various benefits to certain self-funded retirees, including discounts on prescription medicines, Australian government-funded medical services, and other government concessions.

Aged Care Planning

Securing your lifestyle right up to the end means planning for potential long-term care needs. Aged care planning is often overlooked but it is an important part of comprehensive retirement financial planning. Incorporating aged care planning into your broader financial strategy early on in your retirement, means that you will have the necessary funds available when the time comes, ensuring you will also be in the best possible position to assess your healthcare services options and required support systems.

Assessing and securing appropriate insurance, such as long-term care insurance, can provide financial support for potential aged care costs, including accommodation and healthcare services. Becoming familiar with the fee structures of different aged care options, including residential care and home care, will help in making informed financial decisions with your financial planner.

Strategic financial planning during your retirement is important to ensure you can enjoy your golden years to the fullest. With effective management of your retirement income, investing wisely, utilising government benefits, planning for your estate, and considering aged care options, you can protect your financial future and enjoy a fulfilling and worry-free retirement.

Remember to consult with JSA financial planners and review your plans regularly to adapt as circumstances change. Your retirement should be a time of relaxation and fulfilment, and with careful retirement planning, you can make it just that.

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