New Year’s Resolution – Steps I can take this year to help make a difference to my retirement

It’s New Year’s Resolution time, a time when many of us think about how we can be more financially sensible, and potentially boost our retirement savings fund. But as Mark Twain said, it can be an overwhelming task.

Whether you are retiring in the next year or so, or in 20 years, start by thinking about when you want to retire.
 

When do you want to retire?

While Australia doesn’t have an official retirement age, there are some factors to consider when determining what age you might stop work. You might retire when you’re eligible for the Age Pension, or when you reach your Preservation Age – the age you can access some of your super, and if you are also retired, all of your super.

Your retirement age might also be influenced by your profession, health, family circumstances, or individual preference.

The main point to remember is the earlier you retire, the longer you’ll be relying on your super and savings, and the more you’ll need to have saved to support you.

So, you need to think about when you want to retire, and how much money do you think you’ll need to retire on?
 

Create a retirement savings plan

If this is the year you want to make a difference to your retirement, then a good early step is to create a retirement savings plan. It is never too early to start. A retirement savings plan will help you understand what your desired retirement income might look like.

Not only will this plan show how much you’ll need to save, but it can also help you understand expenses you may need to scale back to achieve your goals. A financial adviser can help you create your retirement savings plan.

One of the questions you need to ask yourself is whether it’s worth adding more to your superannuation fund now?

The answer depends on the individual, and is best addressed to your financial planner, but superannuation can offer two significant benefits – tax concessions and compounding interest.
 

Benefits of adding to your superannuation

Making additional contributions to your superannuation helps you grow your balance, and income is taxed at 15 per cent. Depending on your marginal tax rate, this may be advantageous.

If you have a spouse or partner, it may be worth making a contribution to their fund. Once again, be aware as annual limits on super contributions do apply. Your financial adviser can help explain these limits.

There are some limitations to super.

Generally, you can only make up to $27,500 in super contributions before-tax in the 2023/24 financial year (this amount includes your employer’s contribution of 11 per cent of your salary) or up to $110,000 in after-tax contributions¹ in a financial year¹.
 

Understand your risk tolerance

Now may also be the time to review your super fund, to check your nominated investment strategy is in line with your tolerance for risk.

Pre-retirees may be tempted to shift their super into low risk, conservative options. But it could pay to have part of your retirement savings, including super, invested in growth assets to generate long-term capital gains. If you are younger, then a bias towards growth assets might be right for you. You can explore these options with a financial adviser.
 

Pay down debt

If you still have money owing on your home loan, it may be worth using spare cash to pay down this debt. More generally, repaying as much of your debts as possible before you retire, can make a big difference to your lifestyle and the funds you’ll have available in retirement.

Make a plan to proactively clear your debt by using any free cash flow to reduce the amount you owe to strengthen your financial position. You may also want to consider any benefits gained from rolling your debts into one, or shop around to find another provider that offers lower rates and fees.

If you are struggling with credit card debt, a starting point is to ensure you’re able to pay off your credit card in full every month.
 

Understand your cash flow

From a cash flow point of view, it’s good to understand where every dollar is coming from, as well as, where every dollar is going. Start with a list, a spreadsheet or a mind-map on an A3 piece of paper, and you will be amazed at the clarity gained around your current financial wellbeing.

It is a good idea to speak to your financial adviser when understanding your cash flow, who would be able to advise the best option for your circumstances and the economic climate.
 

Check your insurance cover

If you have insurance in your super, you may want to check if your cover still suits you, and your family’s needs.

No matter what your financial position is today, an unexpected event can see it all unravel very quickly. Insurance cover can help so that if there is an unforeseen event, you and your family can hopefully continue to move forward – and it can lessen the impact to your retirement savings.
 

What if I only have a year or two before retirement?

It is never too late to put more money away for retirement, or reconsider how you are managing your superannuation. Here are five tips for anyone wanting to retire in the next 12 months.

1. Remember the 10/30/60 rule which says 10 per cent of your retirement income comes from what you saved during your working life, 30 per cent from investment returns before you retire, and 60 per cent from investment returns during your retirement.  It means most of your income in retirement  is likely to come from your investment returns in future years. There’s still plenty of time for your money to grow.
   
   
2. Have the right mix of assets for your stage in life. A sound, long-term investment strategy should keep your nest egg growing as you start to withdraw from it, based on your investment timeframe and tolerance for risk.
   
   
3. Keep an eye on financial markets and have a good relationship with a financial adviser. It's particularly important during turbulent times. 
   
   
4. Consider a transition to retirement strategy.
   
   
5. Take your time – if you are thinking about retiring this year, give yourself time to plan properly, and that includes planning for the unexpected. A financial adviser can be of great help to get your plan in place.
    

Conclusion

New Year is as good a time as any to start making changes. As Mark Twain said, the secret to getting ahead is to get started. And no matter how overwhelming, break tasks into manageable bits and take the first step.