Key takeaways

• It’s hard to predict what your expenses will be when you retire, but knowing what your lifestyle costs are now, will provide a guide of what you’ll need to live off in retirement

• Next, determine the total amount of income you'll need to live off based on what your living costs are, and create a financial plan

• If you’ve got capacity, you may want to consider making extra contributions to your super while you’re still working.

Retirement represents a significant milestone—a time when we can finally reap the rewards of our hard work. But to achieve a comfortable retirement, financial planning and preparation is required.

In this article, we look at the essential steps you could consider to secure your financial future, from understanding your living costs to creating a financial plan.

Step 1: Define what retirement means to you

Many people who retire define it as not having to work to live, essentially achieving complete financial independence.

But this may not be how you define it—you may want to continue working but at reduced hours in a less stressful role. Or perhaps you'd like to focus on a hobby that doesn’t generate an income.

Before diving into the financial aspects of retirement planning, it's crucial to identify your retirement goals. What does your ideal retirement look like? Consider factors such as lifestyle, travel plans, healthcare needs, and other personal aspirations.

Step 2: Understand your living costs

It’s hard to predict what your expenses will be when you retire, but knowing what your lifestyle costs are now, will provide a guide of what you’ll need to live off in retirement.

By understanding the financial requirements of your retirement lifestyle, you can determine the amount of savings required to sustain it.

As part of this step, you’ll need to factor in the amount of sustainable income you can create from your savings, investments and other retirement income sources like government benefits such as the Age Pension. Our retirement calculator can help you with this.

As a guide, the Association of Superannuation Funds of Australia (ASFA) predicts if you own your home outright and are relatively healthy, a single Australian will need $50,004 ($70,482 for couples) a year to live on for a comfortable retirement as of March 2023.¹

Step 3: Calculate your total retirement savings goal

Next, determine the total amount of income you'll need to live off based on what your living costs are—calculated in step two.

You’ll then need to decide how much you can safely withdraw from your super, other savings and investment earnings over your retirement timeframe. The earlier you retire, the longer your money will need to last.

This part may be difficult to calculate on your own, especially when there are multiple scenarios to consider, like how a possible recession would affect your investments.

There are retirement calculators available to help you but if you want even more support, a qualified financial adviser can crunch the numbers, and send you home with an actionable plan to achieve your goal.

Step 4: Make a financial plan

A financial plan is designed to turn whatever vision you have for your retirement into reality.

Running the numbers will help you understand what trade-offs need to be made and the options available to achieve your goals.

This is where an experienced and qualified financial adviser can really add value. They can help you determine how much you should save and invest each month to reach your retirement goals and whether your investment strategy is too risky or too conservative. They can also identify any tax savings or government benefits that may be available to you.

Step 5: Grow your super

Your super will most likely make up a major part of your retirement savings—providing a safety net for your future.

If you’ve got capacity, you may want to consider making extra contributions to your super while you’re still working. This could be in the form of sacrificing some of your salary each month towards it or contributing a lump sum when you receive a bonus for instance.

There are also tax savings in doing this. When you sacrifice some of your salary, or ask your employer to pay your bonus into super, those contributions are taxed at a rate of just 15%–which could be a lot lower than the tax you’d be paying on your regular income, depending on your personal income tax rate. However, if your income exceeds $250,000 per year, you may be charged 30% tax on your contributions rather than 15%.

These extra super contributions (referred to as concessional contributions as the money has not been taxed) count towards an annual cap—currently $27,500. This cap also includes your employer super contributions. There are a few things to consider so you may want to speak to a financial adviser to determine if this is the right option for you.

Step 6: Stick to the plan

If you’re hoping to have the type of retirement you envision, it’s important to not only develop goals and a course of action, but to stick with your plan.

One way you could approach this is to make your savings and investment plan automatic. For example, if you decide to invest $500 a month to an investment portfolio, setting up an automatic transfer could be a consideration to make sure it actually happens.

Where to go to for more information and advice

Looking for more information now? We recommend you visit the retirement section on our website, which includes a range of tools and resources to help kick-start your retirement planning.