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Planning for retirement can start at any time, the earlier the better, but often it gets left until people are in their fifties and actually approaching retirement age. We asked James McFall of Yield Financial Planning for some tips on making the most of your final years as a wage earner.
What does pre-retirement look like?
Pre-retirement is widely recognised as being around 50 to 65 years of age, although some will work far beyond that. It’s a stage in many people’s lives when the kids have left home, they are at their peak earning capacity and have already accrued considerable equity in the family home.
Consequently, they might find themselves with fewer expenses and a more abundant cash flow and be looking for ways to optimise on that for their future.
Should extra funds be put to reducing debt?
To answer that question, you first need to ask yourself what you want in retirement: to be sitting at home, or travelling? A life of recreation, or watching every cent?
By all means, continue to reduce debt – no one wants to go into retirement with debts. But even more important is to grow savings as rapidly as possible, and there are ways to do that – through investments, reducing tax and boosting superannuation.
Salary sacrificing is a tax-effective way of saving for retirement. By diverting some before-tax salary into your super fund, you’ll benefit in several ways: by being taxed at a lower rate on that amount, and by reducing your taxable income. At the same time, increasing the amount in your super fund will dramatically impact your ultimate retirement income.
So it’s never too late?
Sooner is better, but it’s never too late to positively influence the growth of your retirement funds. The more you can invest now, whether in property, super or shares, the faster your retirement fund will grow over the next few years.
If you own a business, you will want to have it sale-ready, with demonstrable, effective processes and structures in place when the time comes to retire – it’s not simply a case of closing up shop and walking away. Timing your exit is also critical and can have a big impact on the level of interest you have from potential buyers: if it is a financial services business or you’re in the building industry, there would be fewer potential buyers in a downturn, so it might be worthwhile holding off until circumstances change. If your business is sale ready, however, it is more likely to be in demand regardless of the market conditions.
Employees who are nearing retirement will need to consider how to deal with accrued benefits such as unpaid leave and employee incentives. There are things you can do to influence that final payout, so it is advisable to talk to a financial planner before making any decisions.
How can a financial planner help?
A financial planner will help you understand what it is you want to achieve in retirement and examine strategies that will get you there, such as managing risk, optimising tax position and partnering with you to make more informed choices through good times and bad.
Talking through your position with someone who understands the opportunities and ramifications will give you a clear structure around what you’re doing and why; and that structure is a critical element in determining, in the end, how comfortable and secure you are in retirement.
A financial planner can help you plan ahead for retirement. Use our Find a Planner tool to find one located near you.
James McFall is the Founding Director of Yield Financial Planning, Corporate Authorised Representative of The Advice Exchange, ABN 55 107 629 194, AFSL 278937.
This article contains general financial advice only. It is provided by an Australian Financial Services licensee (AFS licensee) or the employee or authorised representative of an AFS licensee as identified in the article. General financial advice does not take into account your objectives, financial situation or needs, and you should consider seeking professional financial advice before acting on the general advice provided.
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