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Making sure my money lasts as long as I do

Everyone wants to feel confident their retirement savings will be enough to support them throughout their entire lives. While the right amount will be different for everyone, there are lots of tips and tools to determine the right amount to retire on.


 
Everyone wants to feel confident their retirement savings will be enough to support them throughout their entire lives. 

While the right amount will be different for everyone, there are lots of tools self-managed super fund (SMSF) investors can use to determine how much is the right amount for them to retire on.

“I recommend using the ASFA Retirement Standard Budget as a reference. The idea is to compare your budget with the standard budget to identify areas you spend more or less on to work out your own budget,” says to Liam Shorte, financial planner and director of Verante Financial Planning. 

For example, many SMSF members with overseas relatives may want to spend an extra $10,000 a year if they wish to visit them regularly in retirement.
 
“I also use the Accurium Retirement Health simulator, an actuarial tool for advisers, to work out the sustainability of the desired income, based on current super and non-super assets and income, as well as contributions up to retirement,” Shorte adds. 

Damian Liddell, a financial adviser with Browell’s Financial Solutions, says the starting point is to work out your income needs. 

“A lot of people have no idea what their living expenses in retirement will be,” he says adding that the ASFA retirement standard benchmark indicates a couple will need $34,911 a year in income for a modest lifestyle or $60,093 for a comfortable lifestyle.

Shorte has 10 strategies for people who, after having worked out how much they need for retirement, need to build a larger super balance:

1.      Work a little longer
2.      See if you can increase Centrelink assistance by moving funds around 
3.      Review your budget to tighten up spending
4.      Take a part time job to supplement income 
5.      Take on more risk and try to make your portfolio work harder for you
6.      Consider more index options in your portfolio to lower costs
7.      Consider a reverse mortgage
8.      Look at downsizing options
9.      Use a Seniors Card for discounts and deals
10.   Question service providers’ fees and charges to see if you can trim them

“This applies to your tax agent, financial planner, electricity and gas, hairdresser, health, car and home insurance and petro,” Shorte adds.

Shorte says it’s useful for people to start thinking about this from their mid 40s to early 50s.
 
“It’s important to plan early for retirement with the new, lower concessional caps and the tendency for people to have more debt and children at home later. The idea is to get on top of your finances earlier in life rather than wait until 55 or 60, as many baby boomers did.” 

“They were usually empty nesters and out of debt so they could make large contributions under the generous concessional caps to play catch up in the last 10 years before retirement. Future generations do not have that luxury,” he adds.
 
 Look at the detail

“Ensure all your money is working for you by making sure it’s in the right name and right structure,” says Short. 

“If you have a decent amount of funds and won’t receive Centrelink benefits until later in life, consider ways to get into the pension phase as quickly as possible by super splitting to an older spouse or taking a part time temporary job after the age of 60 to trigger a condition of release to move to the pension phase,” he suggests. 

It’s also an idea to maximise tax-effective saving through salary sacrificing, spouse contributions, co-contributions and keeping some funds outside super in the name of the spouse with a lower marginal tax rate. 

Says Shorte: “Don’t accept your bank’s cash account rate, shop around for the best deals and forget about loyalty.” 
 
If you are likely to receive Centrelink support, he suggests keeping as much super in the younger spouse’s name to ensure some age pension for the older spouse in the early years of retirement.

“That helps reduce the amount of your own capital you use. Don’t forget Centrelink doesn’t count superannuation in accumulation phase as an asset for people under 65,” he notes.

As Liddell observes, compound interest is always the investor’s best friend.

“The longer you leave it the harder it gets. So have a plan and stop procrastinating. A small amount of effort and planning can make the world of difference come retirement,” he adds.
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