• Personal
  • How to financially plan retirement

How to plan for retirement financially

Title
How to financially plan retirement
Short description

We look into the essential steps to financially secure your retirement, from understanding your living costs to creating a financial plan.

Topics
mlc:Topics/retirement
Media
false
Time to read/watch
5 min
Effective date
2024-10-23 00:00
Feature Image
/content/dam/mlc/insights/images/Articles/2023/how-to-plan-for-retirement-financially/how-to-plan-for-retirement-financially.jpg

Retirement financial planning

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 financially plan retirement, 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) estimates if you own your home outright and are relatively healthy, a single Australian will need $52,085 ($73,337 for couples) a year to live on for a comfortable retirement as of June 2024.1

Is your super on track?

Crunch the numbers to see if your retirement is on track to achieve your goals.

 

Get started

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 effectively pay 30% tax on some or all of your contributions rather than 15%.

When salary sacrificing, or asking your employer to pay a bonus into your super, you must make these arrangements with your employer before these amounts are earned. These extra super contributions (referred to as concessional contributions as the money is contributed before it’s taxed) count towards an annual cap—currently $30,000. 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

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.
 

Retirement financial planning: key takeaways

Following these steps can help you achieve a secure and fulfilling retirement. Seeking professional advice is also vital to optimise your retirement plan and navigate any complexities that may arise along the way.

1 ASFA Retirement Standard: June quarter 2024 https://www.superannuation.asn.au/resources/retirement-standard

* Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report

Retirement with MLC

As one of the largest pension providers in Australia,* we know that growing and keeping your money safe is important. When it comes to support, we go the extra mile—providing general pension advice at no additional cost.
 

Become a member today

 

Related links

How much money do you need to retire?

How to help your retirement funds last the distance

You might also be interested in

  • This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at June 2024 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.