One of the most intricate financial challenges in life is planning for retirement.
This complexity arises because many of the decisions made during this phase are often irreversible…
Furthermore, these are decisions we’ve typically never encountered before. They often carry more significant consequences than the saving and investing choices made during our working years.
So, what kind of decisions are we talking about?
Here are five critical examples
1. Should I downsize my main home?
Selling a home is a substantial and often costly transition. Moving from a single-family home to an apartment, for instance, can be a prudent choice.
However, this new living situation might come with a set of rules and regulations that could be unfamiliar. These restrictions may impact your lifestyle and personal preferences. If you find your new home unsatisfactory, reversing the decision can be financially burdensome. Carefully consider the advantages and disadvantages before making a final decision.
2. Should I relocate?
Downsizing is one thing, but relocating is another. It’s crucial to consider the potential impact on your social support network and the friendships you might be leaving behind.
Although better weather and lower taxes can be attractive, they might not entirely compensate for the loss of close relationships.
You should also consider the possibility of regret or homesickness, as moving can be both costly and logistically challenging, especially if you’ve already invested a significant portion of the proceeds from selling your previous, more expensive home. Weigh the potential benefits and drawbacks of such a significant move thoroughly before making a final decision.
3. When should I retire?
Deciding the right time to retire is pivotal.
It marks the end of regular income and the cessation of saving, as you begin drawing from your retirement fund. However, working part-time during retirement is always an option and offers numerous benefits.
Not only does it provide financial stability, but it also imparts a sense of purpose to retirees.
4. Who should inherit my estate?
Many successful family stewards prioritise leaving a substantial inheritance to their spouse, children, or a charitable organisation.
If this is significant to you, determine what you wish to leave in addition to meeting your own needs.
When discussing estate planning with your financial planner, consider the potential use of a family trust.
5. How should I access my superannuation?
When it comes time to access your superannuation, you have several options available.
If you have a defined benefit super fund, you might be able to take your benefits as either a lump sum or regular payments. The amount available as a lump sum will depend on your fund’s terms, and you may be required to purchase an annuity with the remaining funds. Alternatively, you might take a regular income from the fund, either through an annuity or income drawdown.
If you have an accumulation fund, you may have similar options. Typically, you can take a portion of your super as a tax-free lump sum, with the remaining amount used to purchase an annuity or invested in an income drawdown plan.
It’s important to note that superannuation withdrawal rules can be complex, and the money you receive may be subject to tax. While you would unlikely pay Australian income tax as a non-resident, you may be taxed in your country of residence.
Additionally, the decision to take a lump sum or regular payments should be made carefully, considering your financial needs and long-term retirement goals.
When facing these decisions, it’s natural to lean towards choices that minimise the risk of short-term financial loss and regret.
However, choosing what feels emotionally comfortable now might lead to long-term financial challenges.
Research highlights the importance of engaging with these questions…You’re more likely to make sound decisions if you’re emotionally involved in addressing these potentially difficult retirement choices.
Here are some additional questions to consider as you approach your retirement years:
- What does a successful retirement look like to you?
- What kind of lifestyle do you truly desire?
- How can you manage your costs effectively?
- What are your plans for your later years, and how will you cover long-term care costs?
- What will happen to your business?
All these factors should be integrated into your financial plan, which can only be crafted when your planner truly understands you and your story.
Try to envision your life in retirement. Only then will you invest the time needed to determine how you can support the life you truly want.
