Money
5 steps to make a retirement plan in less than an hour
The thing about saving - whether it’s for retirement, or anything else - is that it can feel like one big uphill grind. Like there’s always something more urgent to think about. Like you’ll get to it one day. Here’s how to tackle it in less than an hour.
By Alex Brooks
What if, in the space of one afternoon, instead of bingeing Netflix or cleaning the bathroom, you got real about your future. And what if you found out it might not be that far from where you are now?
Banish thoughts of worry about whether you will “have enough” – this quick way to spend an hour is more about mindset than dollars and sense.
Begin with your dreams. Your purpose. It matters more than money – read this if you don’t believe us.
So grab a cup of tea, coffee (or maybe a wine!), open the ‘notes’ on your phone and start thinking (and jotting things down).
Step 1: What kind of life do you want?
If you didn’t have to work full-time, care for others or do everything you’ve been told you must do, what would you do instead?
If you could wave that magic wand over your life, what would you change?
Visualise what you really, really, really want to do when you’re 65 or 70 or beyond.
Do you want to eat out once a week? Help your kids? Travel? Will you live in the same house or go somewhere more affordable or make a sea change?
This visualisation is easy for some people, harder for others (especially if you wallow in regret). This part isn’t about superannuation or money. It’s about your intentions. And how you want to feel when you’re retired.
ACTION: Jot a few lines down. Don’t over think it. Give it less than 5 minutes.
NEXT STEP: Get out your latest superannuation statement and open the internet.
Step 2: Forecast your retirement future
Now we let the numbers do what numbers do best: tell the truth. You will need:
- Your most recent superannuation balance (you should be able to login online or access your latest paper statement)
- Your expected annual income
- Your age
- Your planned retirement age (start with 60 and move up to 65 or 67 to play with ballpark figures)
Open up the Moneysmart Super Calculator and type in the numbers to get a projected superannuation balance. This is known as “your number” – it’s your future ‘fun fund’, likely built mostly on your employer’s 12% contributions (which is technically your money).
Then, just for curiosity, go to the “DO YOU MAKE ADDITIONAL CONTRIBUTIONS BOX?” and select “YES”. Add in a 3% before tax contribution – also called salary sacrifice. See what changes. (Spoiler: it might add tens of thousands.)
Then delay your retirement age by five years. Watch what that does.
It does a lot: How much it pays to put off retirement for another 5 years
With superannuation and retirement forecasts, it’s the time you spend IN the market to compound and grow that makes all the difference to your number.
So the important thing to understand about your number is that it’s only a trajectory. A forecast. One that you can bend by contributing more or adding more time to your retirement age.
ACTION: Consider how your number stacks up for your age, income and future plans.
NEXT STEP: Don’t stress about any of this yet. Go straight to step 3.
Step 3: Balance your number against your ambitions
It’s time to forecast your dreams against reality.
This isn’t as easy as it sounds. There are two different ‘tools’ you can use to do this.
- Tool 1: the Association of Superannuation Funds of Australia (ASFA) Retirement Standard (and whether you will live a modest or comfortable retirement)
- Tool 2: Super Consumers Australia’s retirement savings targets (and whether you would like to spend low, medium or high amounts in retirement)
Both of these tools are blunt instruments – the very best thing to do is know how much after-tax dollars you spend each year today and see how close you are to being able to access that amount in retirement.
Where do you sit?
What’s the gap between your number and the recommended yearly spend?
Is the lifestyle you imagined in step 1 closer to modest, comfortable, low, medium or high income guidelines… or is it – gulp – falling short?
The ASFA “modest” retirement number is the ideal minimum to aspire to. Most people will want to go for “comfortable”, or even higher.
ACTION: Don’t get scared! Stay strong.
NEXT STEP: There are plenty of ‘tweakments’ you can make to your retirement plan from here. Step 4 involves working out what you can do next to make it easy.
Step 4: Choose your levers to play with
If your retirement plan is looking good already – go you! You can start thinking about better ways to manage risks and understand how retirement income works.
If you need to make some tweaks, here are some ideas:
- Salary sacrifice more income (or even your tax returns!) to boost your superannuation number.
- Brush up on your Age Pension entitlements and learn about the peak pension opportunity.
- Work for longer – maybe consider retraining to do a job you love – so you can continue tipping money into super.
- Think about a transition to retirement (TTR) strategy to see if it suits your ability to recycle income tax more effectively.
- Use catch up concessional contributions (including prior years’ unused limits) – read more about catch-up concessional contributions.
- If you’ve owned a home for at least 10 years, think about using the downsizer bonus to contribute more to super.
- If you’re still renting, plan where you might be able to relocate to live somewhere cheaper or consider 10 places to retire overseas.
ACTION: Choose one or two appealing items from the ‘tweaks’ list above. Explore it.
NEXT STEP: Commit to revisiting other options for your retirement later on. This is your toolkit, nobody else’s. Call your super fund and ask about getting access to free or deductible advice personalised to your circumstances.
Read this CITRO GUIDE too: Your pre-retirement game plan
[EMBED Pre-retirement game plan]
Step 5: Write it all out
It’s only one sentence: “I am on track to retire with around $XX by age XX and I’ll live a lifestyle that feels XX for XX years.”
That’s your north star. Close those calculators. Return to your real life with something most people don’t bother with: clarity about how they will retire.
This article contains general information only. It is not financial advice and is not intended to influence readers’ decisions about any financial products or investments. Readers’ personal circumstances have not been taken into account and they should always seek their own professional financial and taxation advice that takes into account their financial circumstances, objectives and needs.
Feature image: Customised from Canva/Oksana Krasiuk
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