Professional Post from Michal Bodi 

Retirement is a huge milestone in peoples’ lives. It has many faces and we will reach it in a number of different ways. Sometimes it happens suddenly, sometimes it is planned for. Sometimes it is voluntary and other times it may be forced upon us.

One thing is certain though, retirement is the single biggest, most terrifying financial decision people ever have to make as it involves large sums of money and lots of emotions.

Financially speaking, retirement is essentially an income problem.

The only two objectives that matter and count in retirement are:

  • Lifestyle sustaining income that lasts a lifetime
  • The income needs to keep pace with the increasing cost of living.

Unfortunately, due to extreme circumstances (the biggest, the most terrifying and emotional time) the focus of most retirees is everywhere else but on these two main concerns. The talk is about certainty and safety. But it is the concept of safety that’s usually misinterpreted and lures retirees into the trap of a financial tragedy.

Shift in retirement planning

Most baby boomers have inherited their parents’ concept of ‘planning’ for retirement – being looked after by government and/or receive an employer supported pension.

In the past, many employers offered what was called ‘defined benefit pensions’. Although, far from perfect, these used to be a source of some income, which in combination with social security income they allowed the veteran generation to live a modest lifestyle they were used to.

Defined benefit pensions are no longer being offered. So unless you already have one in place or lined up, you will have to look after your retirement yourself.

And the social security pension?

Firstly, it will hardly be enough to afford you a decent retirement.

Secondly, the demographics of Australian population are changing – the baby boomer generation has already doubled the long term average of people retiring per year.

And it continues to increase it to an estimated number of 140,000 retirees per year in about ten year’s time.

So, what’s the point?

  • There is more retirees, with no retirement plans, relying on someone else to look after them in retirement
  • The government policies will inevitably have to change to deal with the dramatic increase in demand of age pension applications
  • Relying on government support(or any other income support in retirement for that matter) is simply not a sensible strategy if you want to retire on your terms

If you still think that the government will look after you and you are happy with that prognosis, stop reading now. I wish you all the luck in the world.

If, however, you wish to retire on your terms, keep your dignity throughout your retirement and stay retired for the rest of your life, you might want to pause for a moment and think about the steps you are taking towards your own retirement.

We have now established that we need to shift the focus of government and employer support to relying on your own savings in retirement.

But you will need to plan to make sure you’ll be able to rely on your lifetime savings. Please notice the use of the verb ‘plan’.

There is no secret to a successful and independent retirement other than having a long term, time and dollar specific plan which will clearly determine whether you are on the right track or not.

By having a plan I do not refer to a ‘good’ superfund, a portfolio, good investment returns, low fees, great product features and benefits, healthy economy etc… etc….

What I mean is addressing and knowing:

  • How much money you will need at the time when you retire (so you’ll be able to draw a lifestyle sustaining income for the rest of your life)
  • How much money you currently have
  • How much money you need to contribute each year into your savings in order to get to the first number
  • How you need to invest your funds and why.

The only way to even begin answering these questions intelligently is to sit down with a quality financial planner and have an honest conversation. This is a first step of the planning process which will ensure that one day you will be able to look back with a smile.

Because you will have some certainties in life and you will be in control. And it will only happen if you decide to do something specific about your future today – It’s called planning.

Click to contact Michal Bodi
photo credit: Roberto Trm via photopin cc

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