Financial Planning

Financial security in retirement takes planning. It doesn’t just take years of planning. It takes decades. However, if the decades have already passed, several years of savings can make a big difference. It is only too late to save for your retirement if you are already retired, in which case, you should instead turn your efforts to educating your children and grandchildren about the importance of financial planning. If you start early, there are four stages in financial planning based on your age.

Stage 1 – Early 20s to mid-30s

At this stage of financial planning, the best thing you can do for yourself is to avoid debt. Buy only what you need. Many financial experts even suggest avoiding debt for transportation and home ownership at this stage.

Start a savings account. Compound interest is a powerful tool in long-term savings. If you put $10,000 into a savings account with compound interest and never touch it again, that account can be worth as much as $500,000 in 40 years.

Protect yourself from a loss of income. A sudden loss of income due to downsizing, injury, or illness can strike at any time. Income protection insurance is an affordable way to protect your savings and keep you financial ruin.

Maximize your savings by taking advantage of superannuation. Your employer and, in some cases, the government will contribute to your fund. Keeping the majority of retirement funds in your superannuation will provide you with the highest and safest returns at retirement age.

Stage 2 – mid-30s to 50

At this age, most people have families to support. If you are the primary earner in your family, make sure they are protected in the event of a disability or an untimely death. A life insurance policy can save your family from being overrun by debt and eventual poverty.

Not only do most people have families at this stage, but they also have a home with a mortgage to match. Paying off your mortgage early can save you thousands of dollars in the long run. If you have any extra money in any given month, put it into your mortgage. The sooner you are free and clear, the less interest you will pay.

While a savings account is fine for stage 1, at stage 2 it is time to consider other long-term investment strategies. You should be able to liquefy these investments at will should a new opportunity or an emergency is presented.

Always put a little money away in a separate education account for your children. If they are exceptionally gifted, this extra money can help put them in a school that can maximize their potential.

Stage 3 – 50 to 65

Stage 3 is where you want to make sure your income is as high as it can possibly be. You should be at the top of the earnings bracket in your occupation. Take a look at your insurance coverage, and decide if it is still necessary. At this point, you can probably cover a short-term loss of income, so income protection insurance is no longer necessary. If your savings are adequate, you may also be able to cut back on your life insurance coverage.

A good portion of your salary should be going into your superannuation. This provides a great tax advantage that will end up saving you thousands. When you reach 50 years of age, you can put up to $50,000 into your superannuation each year.

Pay off all of your debt. It is extremely helpful to have all of your debt paid off before reach retirement age. If your mortgage rate is higher than your investment return rate, it should be paid off in lieu of adding to your savings. Once your pension payments start, your income will likely drop, making debt payments more difficult to meet.

Talk to a financial analyst about your superannuation. In the final years before you retire, make sure your former investment strategies still apply. Make some sound predictions on where you will stand exactly when it is time to begin your payout.

Stage 4 – Over 65

This is most likely the beginning of your retirement. Remember, you may live for another 30 years, so remain wise about your spending habits. It could be a real burden to have saved all your life only to run out of money in your final years.

Take a look at your lifestyle needs. Many people at this age find that they no longer need as much space as they once did. Selling a home for something less expensive can free up a great deal of cash.

The income you make from your superannuation payouts should be tax free. Make sure you are not paying taxes you shouldn’t be.

Read up and get some advice on the rules of your pension. You must always remain vigilant in seeing that you receive your full entitlement. It’s your money, and every dollar is important.

Help for Self-Funded Retirees

The Australian government, in recognition and appreciation of the efforts of self-funded retirees, has started a program in response to the worldwide financial crises. If you are a self-funded retiree, you will benefit to contact Centrelink and learn of the benefits that may be available to you. Such benefits may include the following:

• An extension in draw down relief for account-based superannuation. This can help you recover from capital losses.
• A tax bonus of up to $900 for self-funded retirees with an income of less than $100,000.
• Up to $2,100 in Economic Security Strategy payments.
• Senior tax offsets.
• Mature worker tax offsets.
• Across-the-board tax cuts.

In order to maximize your benefits, it is worth talking to a financial consultant. Depending on where your assets are located, you can receive more benefits for what amounts to the same net worth.

Important: All the information provided on this website is made available to be used as a guide only, and should not be considered a quote, a loan offer, or investment advice. Other criteria may need to be considered, and before making any financial decisions you should always consult your personal financial adviser.