What really happens in retirement?

It is one thing to hypothesise about life in retirement. It is entirely another to live it.

Preparing for financial independence and life without regular employment income (otherwise known as retirement) can be both exciting and challenging. From our own experience of consulting, advising and managing many clients’ financial affairs leading up to and through retirement, we have been fortunate to be involved in many happy stories.

To this day, we can’t recall one client regretting their transition to retirement nor that any of them thought that they in fact retired too early.

However, there are many lessons to be learnt from other people’s personal and real experiences.

I would like to share some of these with you

– Without a doubt, the most unsettling transition to retirement is the one brought about by necessity and not choice. This is often caused by early and permanent loss of work or ill health.

In both instances, one is forced to make the most out of an unplanned event. We would always caution against accepting a voluntary retrenchment package without fully understanding the likely consequences. The lump sum monetary offer may appear to be far more enticing than it’s real benefit.

-Preparing a real cash flow budget of your day to day essential living costs is absolutely critical. Often individuals get too excited about the big picture of retirement; holidays, 4WDs, helping children, and skip over the detailed analysis of their cost of living.

In our experience, people will often underestimate their real cash flow requirements. The longer you’re able to prepare and give yourself a chance to record and analyse your costs of living, the less chance there is of you being disappointed in retirement.

– It’s not inflation that will hurt you, it’s the changed lifestyle. It is quite misleading to place all your bets in protecting yourself against inflation when in actual fact, even a slightest change in your lifestyle or capital expenditure is far more significant. Consumer price index [CPI] is a very dodgy index for the general population let alone a specific group of individuals [retirees], let alone each individual. It’s certainly a factor to take into consideration, but it’s effect on an individual’s retirement planning is far less notable than what is promoted and marketed in the media.

If on the other hand, you decide that taking an annual cruise or gifting your children or grandchildren a regular amount of cash, or collecting fine wines is something you’ve decided to undertake without making an allowance for it before you retired, your long term plans could be in trouble.

-Resist the temptation of locking your money into a long term investment. Your circumstances will keep changing and sometimes dramatically. Maintaining flexibility within your financial situation will allow for you to adapt and control your financial outcomes.

– Always avoid complexity. If you don’t understand what you’re investing in, the investment is not right for you.

– Do not underestimate the value of a Government pension and the associated benefits. Get your share, whatever it may be. If you plan well enough and early enough you can make sure that you absolutely maximise your due entitlements.

As the interest rates keep falling the value of Government indexed age pension keeps increasing.

In the current environment we estimate that the full age pension for a couple aged 65 (totalling $33,488 per annum, including associated benefits) is worth in excess of $1,000,000.

– Keep working, part time, casually even voluntarily as it makes a huge difference to your self-worth and your net worth.

– You will likely live and enjoy life a lot longer than you thought.

– Do not ignore the value of your residential property and the options it may provide you. Downsizing should be considered at the earliest opportunity as this may release additional capital, tax free.

– Reduce, and where possible, remove taxes and costs associated with managing your affairs. Be cautious of anything being expressed as a percentage. Always know how much your cost and taxes are worth in dollar terms.

Also be wary that ‘nothing is for nothing’. Be prepared to pay for good advice and service, knowing that you will have peace of mind.

And finally;

– Kids never repay loans.