A simple guide to help you retire with peace of mind
Are you ready for retirement, and if so do you have money saved?
Many people often say they plan is to live with their kids.
Living with your family during retirement can be very gratifying, but it is important that you don’t become a burden on them.
People, on average, live 20 years after they retire. In general, people need almost 80% of what they earn in order to live comfortably after retiring. That’s a lot of money, so you’ll definitely need a good plan in order to get there.
It’s never too late to start retirement planning or even too early
The first thing is recognising the importance of saving for retirement.
The three most common options are:
- Pension benefits, offered by some places of employment.
- Savings and investments, started by you.
- Superannuation, which is the Government’s retirement plan.
If you’re still working, consider adding more of your income to your superannuation.
In order to plan well for retirement, you must consider what types of expenses you’ll have, whether you’ll work or not, if you’ll have additional medical insurance, or if you’ll have costly hobbies, like travelling.
There are many things to consider, so you may want to consult a financial expert for help.
Retirement planning is all about saving not spending.
Westminster Lodge Mackay – A Retirement Village with a Difference
The Westminster Lodge Mackay community offers a real alternative to home ownership or traditional Mackay retirement villages. With no expensive upfront fees or hidden costs, Westminster Lodge residents enjoy a great lifestyle with quality accommodation at an affordable price.
Renting at Westminster Lodge gives you the opportunity to free up your capital so that you can enjoy the lifestyle you have worked hard for. Our community is a friendly and safe environment where you can enjoy modern living and personal service.
We also employ a maintenance team to take care of the gardens and we provide three meals a day. All of this is provided as part of your weekly rental. Marvellous
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8 critical retirement mistakes you can avoid
- Not having a cash flow plan. Retirement is all about cash flow not your net worth. Without cash flow you don’t actually have a retirement. It’s your income that will determine your lifestyle in retirement.
Now that you’re retiring, what you’ve accumulated needs to support your income needs for the remainder of your life. Spending too much in the early years or experiencing significant losses in the early years could result in you running out of money before you run out of time.
- The second mistake is not having a budget. Many high net worth or high-income earners have never lived on a budget. Because their wages are high, they’ve just lived comfortably and been able to save along the way. However, when you retire, you no longer have earned income.
Now, what you have saved needs to provide for you. To create a good cash flow plan in retirement, you need to have a good handle on how much money you spend every month and year. Underestimating your budget could throw off all your planning calculations when creating your retirement plan.
The more accurate your budget, the better your cash flow plan. I’ve used and recommended mint.com as a tool to help you know where your money is going. When it comes to living on your budget, I prefer the old-fashioned envelope system. Benjamin Franklin wrote “a small leak will sink a great ship.” So please, create a budget before you retire and practice sticking to it.
- The third mistake is not maximising social security. For many people, social security retirement income will represent forty percent or more of the guaranteed retirement income. Social security is tax-advantaged income. It is inflation adjusted and a spousal and survivor benefits which need to be considered. A poor choice when starting social security could result in a hundred thousand dollars or more of lost benefits and could be the difference between having enough money to last the rest of your life or running out of money too soon.
- The fourth mistake is having debt. To quote the bible “the borrower is slave to the lender.” If you envision retirement as a time of freedom, travel, spending time with loved ones or service to others, then having debt may hinder your dreams and your sense of confidence.
I found the most successful retirees pay cash when buying used cars. They pay off credit cards every month and only justify using them at all as a means of accumulating travel rewards. Moreover, in the best situations, they’ve already paid off their mortgage.
- The fifth mistake is assuming unrealistic stock market rates of return. Since 1926, the stock market, as measured by the S&P 500, has average annualised returns of a little more than 10%. The key to these returns is time. Over shorter periods of time, stock market can trade sideways or negatively.
Assuming constant rates of return of 7-10% may make your retirement numbers look good but may not be realistic given your time horizon. If you’re thinking of buying stocks today, you should take into consideration that the S&P 500 looks expensive relative to history, when using price-to-earnings on a cyclically adjusted basis. Robert Shiller is a Nobel Prize winning economist who is well-known for this cape ratio.
This fundamental inflation-adjusted means of valuing the stock market has the S&P 500 with a cape score higher than 27 or the median of the past 130 years has been closer to 16. There have only been three times in the last 130 years where stocks have been more expensive. With yields on 10-year treasuries yielding less than 2%, I’d say bonds are looking expensive on a historical basis. When making assumptions about future rates of return, I like to say, “Let’s hope for the best but plan for the worst.” To be safe, I’d recommend only assuming a 4% rate of return on your at-risk assets when constructing your retirement plan.
- The sixth mistake is not planning for long-term health care costs. Most people will be eligible for Medicare when they turn 65 and many will choose to purchase a supplemental policy to cover the 20% of healthcare costs that Medicare does not cover.
However, according to Steve Brown, a local long-term care insurance agent, less than 9% of people have insurance for long-term care health costs which are not covered by Medicare or supplemental plans. These are the type of healthcare costs that don’t kill you but require you to need some assistance for an extended period of time.
They can be brought on by stroke, heart attack, cancer, dementia, Alzheimer’s, Parkinson’s, MS, and the list goes on. According to Genworth’s website, a recent study shows that 70% of people over 65 years old will need some type of support over their lifetime.
They point to the good eating habits, healthy lifestyle choices, and family history, and argue that they’ll never end up needing assistance. Well, it’s certainly not fun to think that our health could change and we could lose our independence. Not planning for this type of healthcare expense could significantly strain, if not completely wipe out, a retirement plan. And worse, may lead to adult children having to consider becoming caregivers. There’s an old saying that goes “One mama can take care of eight babies but eight babies can’t take care of one mama.”
- The seventh mistake is not planning for inflation. Ask anyone who retired on a fixed pension 20 years ago about inflation and you will get an earful. Over the last 100 years, inflation has averaged 3.3%, as measured by the CPI; and over the last 10 years, has averaged 2.3%.
The Reserve Bank has an inflation target of 2% over the medium term. When planning for your future income needs, be sure that you’re taking into consideration the fact that your dollars will purchase less in the future than they do today. Therefore, create a plan that assumes you’ll need more dollars to maintain your lifestyle needs in the future years.
- Mistake number eight is not having a plan for when one spouse dies. Oftentimes, with married couples, one person manages the household and one person manages the finances. Unfortunately, when the spouse who manages the finances passes away or experiences a significant health event, the well spouse can be left in a fog of uncertainty about what they should do, where things are and what should happen next.
Not only do you need to make sure the surviving spouse will have enough income to maintain their lifestyle, but the surviving spouse needs to be able to have the confidence to continue to carry on the plan that was originally created.
How to Find the Best Seniors Assisted Living Facility
This can be one of the most important decisions you will make for a loved one, so it’s important to determine their needs and desires before making that final move.
Here are some helpful tips on finding the best seniors assisted living facilities/communities.
Alternative senior living options
Many older Australians are resistant to even the thought of moving from their family home and independence and refuse to talk about their ongoing care and alternative senior living options.
Possibly it is because their understanding of senior care is outdated.
Thankfully, today’s seniors have a plethora of alternatives for living out their golden years.
Here are a few options for senior living
Housing Decisions Of Older Australians – Residential Aged Care
A research paper was released by the Australian Productivity Commission, concerning the housing decisions of senior Australians.
It studied the policies affecting the supply and cost of residential aged care specific housing, the impact of the tax and transfer system on housing choices, and the consequences in using home equity release to underpin living standards whilst in retirement.
How Much Should You Save for Retirement?
The number one thing people need to do for retirement is to save, but how much do you save?
One rule of thumb is to contribute enough to get the maximum match in your super or you might have heard that saving ten percent of your salary is a good rule.
How much retirement income is enough is a really important question facing anyone trying to plan for retirement, and that answer is; well, it depends.
What kind of lifestyle do you want? For many, the answer is, “Let’s just keep the same lifestyle we had right before retirement.”
We started our research by defining what’s a replacement rate?