The absence of work
Your retirement will be different to that of your parents. Why?
Generally, the population is living longer and if you are a man and retire at 65, you can expect to live another 15.41 years, while if you are a woman and retire at 65, you can expect to live 19.26 years. This means that your savings or, if you plan to rely on the age pension, need to be stretched out over a long time—for a pensioner that's a lot of years to live on less than $10,000 a year.
Recent retirement figures from the Australian Bureau of Statistics show that people still in full-time employment at age 45 will, on average retire at 58. This means the number of years one would need to provide financially for retirement has increased.
The issue is: how will you make provision for a comfortable lifestyle outside full-time employment?
Attitudinal change
The most common reason people give for continuing work is enjoyment of work, but financial reality will ensure that many remain in gainful employment for as long as possible.
The following attitudinal changes will make retirement more of a question of mindset than a date:
- the current generation of older workers don't want to retire
- they can't afford to retire to a lifestyle to which they've become accustomed, and
- economies of the western world won't be able to support the baby boom bulge with pensions.
If you belong to the generation known as the 'baby boomers' and still working, you've probably experienced big changes in the workplace.
Your retirement may mean a balance of part-time work and more time to consider how your total savings and investments will meet your full retirement needs.
Lifestyle trends too have changed. Many more people are having their children later and continue to house older children; they have been among the worst savers in history; they have the highest quality lifestyles and they intend to maintain that style well into their twilight years. This lifestyle relies on substantial and regular income.
Financial considerations
Actuarial tables have been developed showing how much a person will need to fund a retirement beginning at age 55, 60 or 65.
A lot of government policy has been based on the assumption that people will continue to retire early and completely. What policies don't recognise is the trend towards part-time work in retirement, which is likely to continue as retirees get healthier and live longer.
It is important that you set your financial goals for retirement because more than in any other period of life finances will dictate your lifestyle. Once you've done your sums, you may find that abrupt retirement is not the best option for you.
After all you want to enjoy a certain lifestyle and ensure you have some choice and freedom in your twilight years. So the best option for you may be to work towards a reasonable amount of super, which you won't need to draw on until later in life, and then live off investment income or whatever income you can to generate in the meantime.
So, how much would you need for retirement? If you are amongst the more recent retirees, you'll find that you will be funding your own retirement.
When surveyed many people say they need 60 to 70 per cent of pre-retirement earnings to maintain a comfortable lifestyle after they leave the workforce. Currently superannuation is the main source of income for only 8.8 per cent of older Australians.
In reality, to achieve this sort of target you will need to save about 15 per cent of your wages for about 40 years.
Today there are a number of investment choices, including superannuation available for your retirement strategies. A recent survey suggests that two-thirds of households are saving and putting their savings into less traditional areas. The sharpest increase in two years has been in direct share investments where many investors have been rewarded with higher share values and dividends.
Growing wealth
As you have spent a number of years exploring investment strategies to achieve your financial goals, you recognise that your wealth is built by creating the right investment strategy. Nearly all Australians are indirectly investing via their superannuation through the current 7% compulsory employer contributions. A growing number also directly own shares or have invested in a managed fund.
To make the most of your investing and to ensure your financial security your various investments must fit into a broader financial plan.
So, do you know how much of your total investment wealth is tied up in shares and could be prone to a sudden drop in value?
If you want to maximise your investment returns you must remember that higher returns usually mean higher risks. You need to know what level of risk you can and should take and what mix of investments suits you.
Caution
While shares offer superior investment returns over the long term, you should ensure that not all your money is invested in this asset class and that the proportion that is in shares is spread among a number of different companies and industry sectors.
You should review your share portfolio regularly. If the total value of your share portfolio has been rising steadily you may feel inclined to sit back and not tamper with it. It is also possible the value of your share portfolio in relation to your other investments may have changed substantially.
Getting advice from a financial adviser can help you better manage your investments and maximise your returns for retirement income can provide tax benefits not previously available to you.
