How do I Create a Retirement Income Plan?

Retirement Income Plan: Securing Your Financial Future

Planning for retirement is one of the most important steps you can take to ensure a financially secure future. After working for many years, you want to enjoy your retirement without worrying about running out of money. But how can you ensure your income lasts through retirement, especially with unexpected expenses and the rising cost of living in Australia?

At LIFE Financial Planners in Perth, we’re here to guide you through the most important steps in creating a simple retirement income plan. Let’s work through it together.

Step 1. Understand How Much You’ll Need

Firstly, you should understand how much money you will need. While everyone has different retirement goals, a good foundation is about 70-80% of your yearly pre-retirement income. For example, if you earned an annual salary of $100,000, to maintain a similar lifestyle in retirement, you would need $70,000 to $80,000 per year.

Some factors that should be considered in how much you may need include:

· Basic Living Expenses: Housing, food, utilities, and transport. For example, with Perth’s sprawling urban area, transport costs – including public transport or car maintenance- should be budgeted for in your plan.

· Healthcare: Costs tend to rise as we age, so don’t forget private health insurance and medical expenses.

· Lifestyle: Hobbies, travel, and social activities you plan to enjoy in retirement.

· Unexpected Costs: Home repairs, family support, or other unplanned expenses.

Step 2: Identify Your Income Sources

The second step is identifying where your income will come from in retirement. This can come from a variety of sources. For Australians, this includes a combination of superannuation, the Age Pension, and other investments.

1. Superannuation

When you reach retirement age, you can access your super through:

· Lump Sum: This is when you withdraw all your super in one transaction; however, this may not last long

· Account-Based Pension: This converts your super into an income stream, providing regular payments over time. This helps manage your income and potentially allows your super to grow.

2. Age Pension

Age pensions are available to eligible retirees. The amount you receive on the Age Pension is determined by a means-test based on your income and assets. This form of income is usually not enough to cover all living expenses; therefore, it is essential to have other streams of income.

3. Other Investments

Other investments besides super such as property, shares, or personal savings can provide additional income. For example, having a property you can rent out or sell can contribute to additional funds.

Step 3: Plan Your Withdrawal Strategy

How you access your retirement plan is important. If you withdraw too much too quickly, you run the risk of exhausting your money. While withdrawing too little may cause you to not enjoy your retirement to the fullest. Here are some strategies:

· The 4% Rule: This strategy entails withdrawing 4% of your retirement savings each year. For example, if you have $500,00 in your super, this will equate to $20,000 per year.

· Minimum Drawdown: With an account-based pension, you must take a minimum percentage of your balance each year. This increases as you age (e.g., 4% at 65, 5% at 75).

· Flexible Withdrawals: Adjust your withdrawals based on your needs, especially if you have other income sources.

Step 4: Factor in Tax and Investment Growth

It is important to understand how tax and growth may impact your retirement income. After turning 60, withdrawals from your super using an account-based pension become tax-free. Although, other income such as rentals, dividends, or interest may be taxed, so be sure to account for this in your financial planning.

Additionally, consider how investments will continue to grow in retirement. This may require maintaining a balanced portfolio to ensure your super holds up with inflation.

Step 5: Plan for Longevity and Unexpected Costs

Retirement can last 20-30 years or more, so it is important to plan for the long-term future. Also, it is essential to prepare for unexpected costs, such as healthcare, home repairs, or family support. Here are some ways to prepare:

· Diversity: Spread your retirement savings across different investments to reduce risk.

· Health Insurance: Health care costs are rising therefore, it’s critical to consider out-of-pocket medical expenses and health insurance

· Flexibility: Life can change, so building some flexibility into your plan is important. For example, if you need extra funds, downsizing your home will help provide that.

Step 6: Seek Professional Advice

It is beneficial to seek professional advice to ensure your future is well set up. A qualified financial planner can help you navigate the rules, tax implications, and strategies that best suit your goals. At LIFE Financial Planners, we tailor our advice to each person, ensuring you get the right plan for your circumstances.

Your Retirement Income Plan

Retirement income planning does not have to be overwhelming. By understanding your needs, income sources, and withdrawal strategies, you can create a clear path to a secure financial future. Located in Perth, LIFE Financial Planners is here to help you every step of the way.

If you’re ready to start or need help reviewing your retirement strategy, contact us today. Together, we’ll create a plan that will allow you to enjoy your retirement with peace of mind.

Your retirement, your plan –let’s make it a reality.