Ten years off retirement

Ten years off retirement

Picture yourself on the sandy shores of a tropical beach, watching the sun set across the wide blue ocean. The 9-5 grind is another world away and it’s finally your turn. Tomorrow you’ll be jetting off to your next destination, the word ‘freedom’ on your wrist a freshly-inked reminder of how life is going to be from now on…

It’s a peaceful scene, but one that could turn sour when the realities of a sub-par retirement fund hit. You’re more likely to be lapping up rays in the backyard, your passport shredded and thoughts of ‘if only’ going through your mind.

If this sounds like you and there’s still another decade to make an impact on your superannuation balance, the best place to start is with the end in mind. This may seem obvious, but if you want to end up with cash in your hand on the day you retire, start planning now.

How much do you need in retirement? No really - how much?

As part of my new client onboarding process, we go through a Lifestyle Forecast. This budget goes deep - far deeper than anything else I’ve seen on the market - looking at every expected retirement expense from health to insurances, whether you’re likely to need a new car during that time (or even two), holidays, education expenses (many of us will still have dependents during this stage), right down to new whitegoods. 

You’d be surprised by how many people underestimate how much they’ll need in retirement - and how often it comes back to bite, when the time for nest-egg building is long gone.

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First things first - get your exit strategy right

We usually factor in 20-30 years’ worth of income in retirement, taking into consideration average life expectancy. Depending on your lifestyle choices, this could mean a desired retirement balance from $1million to anywhere up to three times as much - or more.

Look at what you’ve got now, over and above your own home (although your home counts towards your assets, even with downsizing you may pay a similar amount for a new property in a strong market). Calculate your retirement goal and figure out the gap you need to earn over the next 10 years.

Supercharge your retirement savings

There are a number of ways to boost your nest egg if it falls short of the mark:

  • If you’re wanting to earn $100K / year in retirement, you could look at owning 5 properties generating 20K year each. Alternatively, anywhere from 3-5 properties purchased as interest only could generate a capital gain (less capital gains tax) to fund your lifestyle
  • Assess your current mortgage repayments and insurances to see where savings can be made (e.g. Are you paying for health coverage you no longer need or does your life insurance need to be altered if your home is now owned outright?)
  • Investigate the possibilities of salary sacrificing into super
  • If your adult children, left home, consider taking in students, which can generate $200 on average of tax-free income
  • Rent out your spare rooms via AirBnB
  • Sell your tax-free home, invest the proceeds in a rental property and live elsewhere, effectively becoming a ‘rentvestor’

Whether your retirement plans include soft, sandy beaches or chic Parisian cafes (or both), don’t sell yourself short. Act now and reward yourself with freedom of choice - you’ll be glad you did!

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