1.  Take control of your finances

If you want to secure a comfortable retirement you need to get real about how you manage your finances.

Yes life is short and it is important to live a balanced life. But the key word is “balanced”. Odds are you might live until age 90. Has it occurred to you that you could be retired for longer than you were working?

Put in place a budget to keep track of your expenses and ensure you’re not overspending. On top of this get rid of debts as soon as possible. Interest on personal loans and credit cards is a leech on your cash flow.

If you don’t take control now you will never have the spare cash to invest for the future.

2.  How much do you need?

The importance of a budget is that it will show you how much you need to live. Don’t forget to add in your bucket list i.e. travel.

Once you’ve calculated the above, multiply it by 20. This is the lump sum you will need in retirement (in today’s dollars) to comfortably maintain your desired standard of living.

This may sound like a lot but in my view you don’t want to rely on capital drawdowns to maintain your lifestyle in retirement. While drawing down on capital may work in a rising market, all it takes is a market downturn like the GFC and if you’re now a forced seller in a distressed market. A prolonged downturn may mean you never recover.

With the right portfolio, 20 times your income requirement should mean you are living off cash flow and therefore preserving capital. This should see sail you through a market downturn and be in a position to recover losses when markets rebound.

3.  Make a retirement plan. And stick to it!

As the saying goes “failing to plan is planning to fail”. With a well structured retirement plan that is monitored and reviewed you will be well on your way to living your dreams in retirement.

Meeting with a professional financial adviser will enable you to make the most of what you have and provide the accountability that is often lacking to ensure you remain on track. You will also need to review your financial strategy if your situation changes.

Stay strong. Hold your nerve. Don’t be tempted to alter your investment strategy in a rising or falling market. Actively rebalancing back to your target asset allocation is far more effective than attempting to time markets.

4.  Don’t count on employer contributions

The Superannuation Guarantee rate is currently 9.5%, increasing to 10% from July 2021 and eventually increasing to 12% from July 2025. Is that enough for retirement? You could be in for an unwelcome retirement surprise.

There are many different methods to follow but the 50/30/20 Rule is a pretty simple one.

• 50% of your net income is spent on essentials (food, utilities, etc.)
• 30% on discretionary (travel, entertainment, clothing, etc.)
• 20% on saving which can include debt repayment and savings plans.

5.  It’s not all about Superannuation

Taxation can be a major impediment on a wealth accumulation strategy and could result in losing up to 50% of your investment return. With a maximum of 15% tax applicable to earnings and the potential for tax free earnings when you start drawing a regular income stream, the tax benefits of superannuation can be considerable. However, you may not be able to access funds contributed to superannuation until you are 60, so if you are fortunate enough to accumulate an asset base to retire early, superannuation may not be your best friend.

Superannuation also limits the opportunity to use some other effective wealth accumulation strategies including borrowing for investment, which can magnify returns and accelerate your wealth accumulation strategy.

What’s your retirement plan?

It’s never too early to begin thinking about it. If you’d retirement please contact Glenn Fairbairn or a financial adviser at Hewison Private Wealth.