It’s no longer as simple as applying for the age pension, picking up the keys to the Jayco and deciding which road trip to take first.
Not only do retirees need to consider the financial aspects of their retirement, consideration should also be given to aspects of their wellbeing. Coaching your clients through their retirement plans will be as much about preparing their finances, as it will be preparing them mentally for what their retirement years may hold. As life expectancy rises, retirement planning discussions need to be had with clients earlier. This is to make sure they’re given the best shot at the type of retirement they’ve envisaged.
According to the Australian Bureau of Statistics, 55.3 was the average retirement age in 2016-17, for those over age 451. And in recent times the average age people intended to retire increased to 62.92. Australians have one of the longest life expectancies in the world3. While this means clients could spend 20, 30 or even 40 years in retirement, funding those years will require planning and, depending on the client’s circumstances, having to re-adjust expectations.
When discussing retirement with your clients, many questions will pop up. The most important question is what do they want to be doing in retirement? Is it a once in a lifetime trip, regular travel, time with grandkids, volunteering? Will they continue some paid work or is it cold turkey on the nine to five? Once they have a clear picture of what their retirement looks like, the next step is to work out how much they will need to accumulate to achieve that. The earlier they start saving for retirement, the more likely they’ll be able to achieve their retirement dreams.
And when that all-important day arrives, clients will need to be armed with a well-planned and thought out retirement budget. Budgeting generally makes people feel uncomfortable – setting boundaries on spending isn’t often met with enthusiasm. When clients exit the workforce for good, they will have a finite level of income and a reduced ability to replenish that income, so it’s a crucial skill to successfully master.
While clients may be used to earning a regular income over their working life, managing income stream and age pension payment cycles will become their new normal. If they decide to receive their income stream payments monthly, they’ll need to budget their expenses monthly. It may be useful for clients to do a dress rehearsal and re-adjust their spending patterns and cycles before retirement. This will help them avoid overspending when their big day arrives.
Budgeting is a skill that clients should master well before retirement. They’ll need to understand their income needs and that these are likely to change throughout their retirement.
• The early retirement years are likely to be more expensive as travel and social activity takes centre stage.
• The middle years may not be as expensive as grandkids arrive and free time may be occupied by babysitting.
• The ageing years however may see expenses ramp up as the very real possibility of aged care costs arise.
The changing nature of your clients’ retirement income will need careful consideration. Their budgets will need to evolve as their lifestyle needs change. If clients don’t have a strong budgeting plan in place, this may require you to have some difficult conversations. If clients are spending beyond their means or if markets are challenging, this can impact your client’s ability to fund the lifestyle they wish. It can also reduce their aged care choices or any inheritances they may wish to leave their loved ones.
There are many tools available for clients to plan the income they will need for retirement. The Association of Superannuation Funds of Australia (ASFA) regularly publishes retirement standards outlining what lump sums would be required to provide for either a comfortable retirement or a modest retirement. While the modest level is slightly better than the age pension, at $27,913 for a single and $40,194 for a couple, it doesn’t leave much in the kitty for any little luxuries. And while the comfortable retirement income allows for more luxuries, ASFA’s numbers may also provide a challenge at $43,787 for a single and $61,786 for a couple4.
While retirement planning has evolved over the years, most clients look forward to having more time to do things they enjoy. Having to re-adjust their retirement plans can be challenging. While this may be the case, starting early, managing budgets and re-adjusting expectations may just help clients achieve their retirement dreams.
This information is current as at 19 December 2019.
This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not constitute financial advice. It has been prepared without taking account of your client’s objectives, financial situation or needs.
Because of this, before acting on this information, you should consider its appropriateness having regard to your client’s objectives, financial situation and needs. Information in this blog that has been provided by third parties has not been independently verified and BT is not in any way responsible for such information.