Practical recommendations derived from assisting others in achieving their optimal post-work life.
So you’re thinking about retirement, a trip to Europe, long walks on the beach and doing the things you’ve always dreamt of doing. The kids have moved out (or should have) and you’re researching what you need to do to make you’re your retirement as successful as your career.
I’ve been guiding people into retirement for the past 15 years and here are my top 5 things that I’ve learnt in this time.
Number 1: Try before you buy
You will have usually banked up a lot of unused long service leave, and you’re thinking about taking this as a lump sum payment or as a “golden handshake” for a job well done. But a better option could be to use your long service leave and experience retirement before you take the plunge. This keeps your foot in the door so you can return to work either on a full-time or part-time capacity if it’s a disaster.
A Christmas present or end of financial year celebration
One of the very first questions I’m asked is “When is the best time of year to retire?” This usually comes down to a tax question about how to reduce your final year’s tax and ensuring that you maximise all entitlements. The answer to this will depend on what you do with your unused long service leave, but ideally, the advice is to split your income over two financial years to reduce your tax. Because Christmas time is halfway through the financial year generally the answer to “what time of year should I retire” is Christmas time. But it depends.
Number 2: Part time, contract or cold turkey:
A lot of clients drop down to part time before their final year and eventual retirement, and I find that people who do this are the most successful and enjoy an amazing retirement. It gives your spouse time to get used to you full time. Some clients who have gone cold turkey have been in our office 12 months later, upset and wishing they could return to work. This could be either because the full-time relationship with your spouse becomes a lot harder or you don’t have a hobby that you’ve always looked forward to doing. Alternatively, the holiday or activity that you’ve always dreamt of was terrible. Surprisingly, you may miss even the routine that you’ve had for the last 40 years. So too, you may find it hard to replace the work colleagues who are currently an important part of your world with other friends and acquaintances.
Number 3: You need a plan
And not just any financial plan that can be run out of a computer. Elusively, the answer to “How much do I need in retirement?” is: It depends…
- It depends on how long you’re going to live for
- It depends on if you plan to turn left when you get in your A380 on your trip to Europe
- It depends on how much you want to help the kids get into their first home
- It depends on how often you want to play golf, ride on your boat or upgrade the car.
- It depends on if you’re traveling around Australia or just going on short trips.
- It depends if you’re in the Ski Club or not. (Spend the Kids Inheritance)
From my experience, most financial models looking at this have a constant rate of expenses in retirement, indexed with Inflation, which is ludicrous. It is normal for your retirement expenses to be a lot higher in the first 5 – 10 years, because it makes sense to travel and see the world while you’re fit and healthy. Expenses then generally reduce to a more “normal level” (usually $1,000 – $1,500 per week after tax) because you have your first grandchildren and priorities can shift. Or you’ve been everywhere already. Later, these expenses go up again when health inevitably deteriorates.
Getting access to a decent amount of Age Pension is also beneficial. There are excellent strategies we employ to get this for many of our clients. But that’s for another article another time.
Above all, financial plans need to be regularly reviewed and revised as your retirement unfolds. It’s better to keep on top of this with someone experienced with financial projections than to get surprised later.
Number 4: The magic 7%
I’ve found that 7% pa. to be the perfect long-term return objective. Achieving this means I don’t need to take an excessive amount of risk on your investments, it keeps up with inflation and over the past 15 years has proved to be a resilient return that won’t give you a pain in the guts with another GFC or a second coming of the great Pandemic.
Having the right assets to achieve a long term 7% return means being able to ride out the inevitable fluctuations. About one in 7 years we tend to have a diabolical year where we might see a -7% to -10% return. In that time same period we usually see two ordinary years of slightly below 7% and four excellent years. Don’t ask me when each of them will be – if I knew I’d be cold turkey retired…
Number 5: Block out the noise
Turn off the news, stop buying the newspaper and don’t listen to your neighbour. I’ll call you if it’s important.
Sometimes in retirement retirees fixate and panic about the latest “devastating” news headline. They then lose sleep and make decisions on their retirement assets from an irrational point of view. That’s when mistakes happen. And by mistakes I mean selling shares when the market is low or buying shares when the market is high. Or worse still, pulling money out of super and putting it in a safe or under the mattress.
Luckily I don’t see this very often and 99% of clients call me if they are worried and I can explain it and guide them to a better decision. In a few years’ time I often have clients say to me, “Scott I don’t even look at the balance anymore. I’m not worried I know you’ve got it sorted.” They’re the retirement winners.
Eager to lay a strong foundation for your life post-work? Reach out to us for a discussion about your available choices on (07) 3106 3106 or admin@solacefinancial.com.au
Scott Quinlan is a Principal and a Financial Adviser at Solace Financial, specialising in clients pre and post retirement. He can be contacted at 07 3106 3114 and via email scottq@solacefinancial.com.au
