DESPITE Covid and an increasingly overweight population, we are living heathier lives and living longer. Our initial retirement years are staggered – I don’t mean we’re struggling to stay upright, but that we’re transitioning slowly from full time work to part time work, to full time retirement.
In my 30 years of advising pre-retirees and retirees, I’ve noted three retirement phases.
The active stage is from say 55 to 70 years. Naturally everyone’s circumstances and health will vary, but for many it’s a time where the big aspirations and achievements of your working life are behind you, and your weeks are filled with a more balanced mix of activity. You may have heard about that Covid-induced “great resignation” employee trend in the United States. And if you’re in a more physical line of work, you won’t be crawling through the ceilings with quite the same aplomb either. Sometimes career change can be visited upon you by all kinds of influences.
By the way, that’s the age bracket where a good financial planner can add plenty of value. Modelling of how much is enough, re-tuning superannuation contribution strategies, and saving tax are some of the tangible benefits.
Your lifestyle might now include welcoming grandchildren, caring for elderly parents, and ticking some bucket list items such as travel, Covid permitting.
As you morph into stage two, at say 70 to 85 years, lifestyle expenses can plateau. Your retirement nest egg can also be boosted by downsizing your home, although smaller is often not all that cheaper.
You will find the superannuation contribution top-up rules are now more accommodating for you at this life stage. The life expectancy charts tell us 65-year-olds can expect to live to their mid-80s, with females more assured of reaching 90.
If you have partly depleted your retirement savings, it’s the time when your Centrelink age pension benefits may increase to supplement your retirement income. This can be boosted by product strategies such as funeral bonds.
The third stage of retirement naturally involves a lifestyle that is less expansive as well as less expensive. Your income needs can decrease in real terms (after allowing for inflation).
You’re unlikely to be spending big on new cars, boats, caravans and overseas trips, but higher health costs and aged care costs will come along. Increasing asset values (property and equities) have reduced “longevity risk” for many.
Longevity risk is a fancy financial planner term for running out of money before you die. For the fully self-funded retiree that risk can be lower than you might imagine. In fact, it is increasingly common for the opposite to occur – a superannuation pension balance is left to a surviving spouse, and ultimately that widow/widower commonly bequeaths it to adult children.
Whether you’re short on funds and thinking you’ll be working forever, or better placed with plenty of options available to you, planning ahead can alleviate the mental strain of uncertainty.
Greg Cook is a Certified Financial Planner and Chief Executive of Eureka Whittaker Macnaught.