In this, the sixth article of the Road to Retirement series, we explore the steps you can take to maximise your retirement income.

Is a do-it-yourself retirement income really possible? There’s no simple answer to this question. In fact, somewhat annoyingly, the answer is both yes and no – it all comes down to your own self-discipline and capability.

How do you get started? What’s involved?

The building blocks of a successful retirement mean having sufficient knowledge, capability and a sense of confidence in your own financial abilities. You may already possess this combination of skills, but if you don’t, no need to worry, they can also be acquired.

We can break retirement planning down into the following series of five steps that you will need to manage:

1.  Timing
2. Funding
3. Projecting
4. Managing spending
5. Making ends meet

But remember, it’s not just about you

As with most other key decisions in life, your retirement may feel very personal and individual, but taking a more wholistic approach is often the better way forward. Stopping or reducing your work hours is a big call. It’s important to ask yourself:

• What will you do with more free time?
• Do you have a plan to replace the social aspects of work? How will you achieve an ongoing sense of contribution and purpose?
• How will you coexist happily with a significant other when many more days will be spent together? What are their plans?
• If you’re a grandparent, are you now going to be expected to take on child-minding duties? Have you discussed this – or agreed?
• And most importantly – how is your health? Do you have the energy and capacity to enjoy new adventures and activities?

The best start to any retirement plan is to undertake a thorough health check so that you can manage any niggling worries to ensure that your body is fit and ready for the next 20 or 30 years. One inspiring resource for your ongoing health management is the late, great Dr Michael Mosley’s recent book, ‘Just One Thing’.

Plan ahead to make the most of this interesting time in life. Photo: Dreamstime

Now let’s turn to that list of five retirement challenges the retiree will face along the way:

1. Timing your retirement

Getting the timing of retirement right is the first major hurdle. What may help you determine when you wish to step back from full-time work is a fact-based understanding of your expected longevity.

Life expectancy for 65-year-old Australians is one of the highest in the world, at about 85 for men and 88 for women. If you’re in your late 50s or early 60s and thinking of retiring, retirement will probably represent a longer life stage than your childhood and adolescence combined.

Have you thought about how you will fill these years? If you are currently happy with your working life, perhaps a Transition-to-Retirement (TTR) strategy will suit you better than a hard exit? Just because you can access your super at age 60 doesn’t mean that you should. Maybe you can use your 60s to keep working while boosting your super savings (using the many extra contribution options at your disposal) so that when you are ready to take it a little easier, your savings will deliver an even stronger income stream.

2. Funding your retirement

Where will your retirement pay cheque come from? There are five main ‘pillars’ or sources of income in retirement for most Australians. Some retirees use one or two – others all five. These are, in order of the likelihood they will be used:

• Age Pension entitlement
• Superannuation drawdowns
• Private savings and investments
• Work income
• Home equity

Your own particular mix of income will depend upon both your current assets and the decisions you make as to how and when you use your savings (including super) for a retirement income stream, possibly in conjunction with any Age Pension entitlements. Perhaps the most difficult calculations are working out your Age Pension benefits and how these might combine with super (usually through an Account-Based Pension).

Happily, most industry super funds offer their own calculators to assist with this projection. (Or you can use this one on the Industry SuperFunds website).

3. Projecting your money

Projecting how much super you will have by the time you retire is also now much easier, thanks to calculators which also factor in inflation and legislated Super Guarantee increases.

But your total projected savings is only one half of the equation. You will also need a clear idea of likely household expenditure in retirement if you wish to fully understand how long your savings will last as you age. Which leads us to …

4. Managing spending

If you are hoping to retire in the near future, apart from prioritising your health, the single greatest favour you can do yourself is to know your current rate of spending. This is the base from which you can calculate retirement income needs.

Many Australians would rather walk over hot coals than sit down and review their monthly spending patterns, but that is a form of denial and entirely unhelpful. It’s never been easier to extract accurate spending patterns due to banking apps that basically do the work for you by categorising spending on credit and debit cards.

Why not make it a priority to look at one month’s outgoings to review, category by category, how you spent your money? Which spending was essential? Which portion was discretionary? Are you happy with this mix? Then look at your likely retirement income as summarised by the calculators above. Will this projected income cover your current spending? Remember, some costs go down in retirement (commuting, more expensive work wear, lunches, entertaining etc.) and some may increase (perhaps you will need to replace a company car? Or you lose an allowance?).

Many financial planners use a 80 percent rule that suggests 80 percent of pre-retirement income is what you’ll need when your retire, but this can obviously vary depending upon your situation. Now is a good time to think about the percentage of your pre-retirement income that will be needed to cover your new lifestyle when you leave work.

5. Making ends meet

Nobody really wants to lead a hand-to-mouth existence in retirement. It’s meant to be a time when we fulfill long-held dreams, smell the roses and enjoy new adventures. This means some discretionary income will be required. If your basic calculations suggest that you will have little extra income over and above covering basic household needs, then there are many options still available, including accessing home equity, downsizing and using some very specific Centrelink rules to increase entitlements. To better understand these options you may need professional financial advice.

It’s important to know when to access advice

A cautionary note – we don’t know what we don’t know and mistakes can be expensive. The best plan is to either be across all of the rules (which is challenging given the frequent changes) or to work with an adviser who can double check your decisions.

Financial advice comes in many shapes and sizes. It is a mistake to believe you must have a comprehensive whole of retirement plan, for which can prove expensive. Retirement is a long journey, with many twists and turns. Reaching a major turning point often means that decisions are required to be made. Such decisions are often single-issue matters requiring financial advice on tax, Centrelink and super implications.

It’s important at this stage to not ‘go it alone’ but to approach your super fund and its advice team for a ‘single issue’ advice appointment which will typically be much more affordable than the comprehensive advice mentioned above.

Useful links

Ways to increase your super contributions

https://www.industrysuper.com/calculators-and-tools/calculators/find-extra-money-for-super

See how your super might grow

https://www.industrysuper.com/compare/compare-the-pair

Maximise retirement is part six of the eight-part Road to Retirement series. Next time we explain the five worst retirement mistakes and how to avoid them.

Want to learn more?

These two handy calculators on the Industry SuperFunds website will allow you to apply these thoughts to your own savings:

When can you access your super? 

Your retirement needs calculator  

Stick with your Industry SuperFund in retirement and your money could go further. Visit compareyourretirement.com today.

 This content is produced by The New Daily in partnership with Industry Super Australia. 

This information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.