Retirement planning in six steps

Retirement planning can be compared to planning for a dream holiday – your trip may have an exciting destination but the steps you need to take to ensure you get to your desired location safely, and within your budget, can sometimes be tricky.

You may be hoping to leave your job on your designated retirement day and never have to work for a living again. Or, you may be one of the growing numbers of workers who plan to gradually leave the workforce by taking up a part-time role or even beginning a new career. Whatever grand exit you’re planning from the workforce, you need to work out what sources of income you plan to have in retirement.

Your challenge, as a future retiree, is to create the most comfortable retirement that you can afford.

If you’re a woman and retire at the age of 65, then you need to plan to be living the life of a retired lady for, on average, nearly 25 years – possibly as long as your time in the workforce, or time spent rearing children. For a man, life expectancy is closer to 20 years at age 65. Retiring at the age of 60 will mean that you need to finance 25 to 30 years of your life in leisure.

A rule of thumb is that you are likely to require between 60 and 80 per cent of your pre-retirement income to lead the active life that you’re probably expecting in retirement.

If saving for your retirement sounds like too much planning and hard work, you can always try the ostrich option. The ostrich is the largest bird in the world and is famous for sticking its head in the sand during times of stress. Sticking your head in the sand is definitely an option — if you want to be scratching around for financial scraps when you retire.

Now is a good time to take your head out of the sand, rather than spending your days in financial darkness.

Your retirement may mean more than a financial payout, but thinking about your future finances today can make a major difference to how much money you have to live on.

As a starting point, have a go at my six-step retirement planning process: the results should give you some food for thought.

Six-step retirement plan

• Step 1: What type of lifestyle do you want in retirement? For example, do you want overseas holidays every 5 years, regular local holidays, the capacity to dine out, and to run a mobile phone and computer?
• Step 2:  How much will such a lifestyle cost per week, or annually? Using the example in step 1, assuming you own your home, budget for $38,000 a year (or $51,000 for a couple)
• Step 3: Decide how much money in savings that you will need for the retirement lifestyle that you’re hoping for. You can use online calculators available on the websites of many financial organisations to help you with this step. You can also find out how much you need on our website.
• Step 4: Work out how much superannuation and savings that you have now
• Step 5: Estimate how much super and savings you’re going to have when you retire
• Step 6: Take action if a gap exists between how much you want, and what your super and non-super savings are going to deliver.

For more information on planning your retirement check out Trish Power’s book, Superannuation: Planning Your Retirement For Dummies (Wiley) ($29.95)