Your Transition into Retirement

Few things in life are ever constant. The ebb and flow of events and experiences will constantly change, as will our desires and objectives. What we value and pursue in our youth is very different to what has priority in our later years. Our financial planning therefore must constantly adapt and adjust to key life changes.

Planning proactively vs responding reactively

While no two people will ever have exactly the same life experience, there are key markers and events in life that are generally common to all of us. Our relationships, employment, purchases and pastimes are all unique to each of us, but all have a common thread. These events can have a profound effect on our priorities and on our financial situation, but our financial success depends greatly on whether we choose to plan proactively around these life events or simply allow them to happen and ‘take your chances’.

Let’s take a birds-eye view of what some of these key events and life stages are and how we can respond to them in our financial planning.

Finding our feet in the early years

No one ever forgets the surge of independence they get from their first pay packet, the thrill of moving out of home for the first time, or the excitement of committing to a relationship with a life partner. Our twenties and thirties are a succession of milestone events like this that have huge impacts on our lifestyle and our financial situation.

Before long you might start a family and take the leap into mortgage hood. Simultaneous to that, you may be climbing the corporate ladder, or perhaps stepping out into your own business. The challenges, possibilities and opportunities come thick and fast. So how do your finances cope through all these changes? What decisions can you make in these formative years that will impact on your financial success and security for the rest of your life? A wise person once said that those who spend before they save will always end up working for the people who save before they spend. This may sound simplistic, but the principle it illustrates is clear; it is critical to make conscious, informed and thoughtful decisions about your finances during these years in order to set yourself up for a lifetime.

Establishing a good savings habit is a starting point and this needs to be coupled with well controlled use of debt, so that you are living within your means. Beyond this, however, it is important to develop a serious attitude to investing to grow your net worth, acquiring of assets and the protection of lifestyle through personal insurance. Taking advantage of superannuation’s tax efficiencies and long term savings potential is also paramount, in order to get the power of compound interest working for you.

Building on an established base

As you move to middle age, there are many events that will continue to impact your financial health and direction. Your income may well be increasing, or there may be new career opportunities presenting themselves. At the same time, your expenses may be increasing through additions to the family and the burden of education costs will be growing.

You may need to upgrade the size of your residence and expand your mortgage too. All these events will require deliberate and decisive actions in your financial planning. Budgeting becomes more important as your commitments grow. Your personal insurance must be continually reviewed to reflect the burgeoning financial responsibility that a family and a mortgage place on you. On the growth side, your savings habits need to continue and your investments and super need to gain increasing sophistication and diversity to ensure you are maximising wealth accumulation.

Making the most of new opportunities

As we move deeper into middle age and start to see the allure of retirement in the distance, there will eventually come a point where expenses and income will peak, plateau and start to taper off. This will vary in timing from person to person, but key events such as children maturing and leaving home and the paying off of a mortgage can present golden opportunities to accelerate your financial position, if you are diligent with your financial planning. As your discretionary income increases in later middle age it is easy to fritter it away in casual spending, but by keeping your eye on the financial planning ball you can really set yourself up for retirement. Your investment portfolio can be boosted and further
diversified and your superannuation can be given a shot in the arm to maximise tax benefits.

In the last five years leading up to retirement you can also start to access strategies, such as transition to retirement, which will maximise tax benefits and either accelerate your overall growth or allow you to scale down work commitments more quickly. Your personal insurance still requires attention, even though liabilities are contracting. This means managing the reduction of insurance in a measured way to avoid exposure to the increasing financial risk of illness.

Retiring in style

Once you finally take the plunge into retirement your financial planning must continue to be objectively focused so that you can set yourself up for a worry free future. This needs to involve the careful selection of investment assets and income stream plans, together with maximising social security benefits. Critical to whatever investment decisions you make is a close consideration of what lifestyle and activities you want to enjoy in retirement, so that your investments serve a specific purpose, rather than being managed adhoc.

Why advice is so important

Even from this quick summary it is easy to see how challenging it can be to try and manage all of the financial decisions you need to make throughout your life. That is where a financial adviser can be so integral to the process. They can offer objective and informed guidance through all stages to ensure your financial strategy is well matched to your life goals and robust enough to withstand all of life’s twists and turns. It pays to have qualified, professional advice on your side every step of the way.