Here is a practical approach to creating a retirement plan that will help enable financial peace of mind.
Many investors concentrate on building their nest egg during their working lives to pay or help pay for their retirement but fail to give enough attention to planning for a retirement that may last 25 years or longer.
A lack of retirement planning makes retirees more financially vulnerable than necessary in numerous ways including the possibility of outliving your retirement savings, overreacting to market volatility, not planning for unexpected costs and holding a portfolio that isn’t properly diversified.
Some retirees who have not properly planned for retirement may have underestimated the amount required to finance their anticipated lifestyles, while others may be living too frugally given their financial needs.
By following a practical approach for creating a retirement plan that aligns with retirees’ often-unique goals while mitigating risk, retirees may gain greater confidence that savings will match with your future financial needs.
Step 1: Determine your retirement goals
These goals typically include having enough income to pay for basic living expenses, a contingency reserve (such as for medical treatment, home repairs and aged care) and discretionary spending (such as eating out and holidays). And you may plan to leave an inheritance. Once your goals are listed, you can prioritise their importance.
Step 2. Understand your risks
These include market risk, health risk, longevity and mortality risk, event risk (again such as medical treatment, home repairs and aged care), and tax and policy risk (changes to government policies and health care coverage). The research suggests that these risks should be addressed in the context of their impact on achieving their retirement goals.
Step 3: Assess your available financial resources
This will help ensure that your capital is used as efficiently as possible. Financial resources include super and non-super savings, age pension if eligible, annuities, insurance, housing wealth, insurance, and any additional income if planning to work in retirement.
Step 4: Develop a plan to achieve your goals and mitigate your risks
This is a matter of bringing together the various elements of your retirement planning. The right mix of resources should be tailored to your individual circumstances. It should take into account the relative importance of competing goals and the risks that a retiree may be susceptible or sensitive to.
The ultimate retirement goal
In the end, peace of mind may be the ultimate retirement goal bearing in mind this phase of life may represent at least a quarter of our lives. You can read more about planning for retirement in Vanguard’s Roadmap to Financial Security : A Framework to Decision Making in Retirement.
Important information and general advice warning
Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee of Vanguard Super (ABN 27923449966) and the issuer of Vanguard Super products. The Trustee has contracted Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) to provide some services to members of Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc. (collectively, “Vanguard”). The retirement savings tips provided above are general in nature and don’t take into account your personal financial objectives, situation or needs. You should consider your objectives, financial situation or needs, and the Product Disclosure Statement (PDS) and Target Market Determination (TMD) before making any decision about Vanguard Super. The PDS and TMD can also be accessed free of charge by calling 1300 655 101. Before you make any financial decision regarding Vanguard Super, you may wish to seek professional advice from a suitably qualified adviser. Any past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. The information above is current as at time of publication and was prepared in good faith and we accept no liability for any errors or omissions. ©2024 Vanguard Investments Australia Ltd. All rights reserved.
©2024 Vanguard Investments Australia Ltd. All rights reserved.
