How to best manage your savings, debt, estate plan and dependants in retirement
Aussies are living longer than ever before, with men expected to live until age 80 and women until age 851. However, an increased life expectancy also means that Australians may spend longer in retirement than previous generations, and in turn, need more money to fund retirement during those extra years—even if the average income Australians earn may not be growing to match this increased life expectancy.
When you’re retired and no longer earning money, it can be difficult to know how much you can afford to spend and what you need to preserve for the future, without the fallback of a regular retirement income coming in. You may also have added pressures in the mix, such as paying off debt, healthcare costs, and dependants in the form of kids or elderly parents.
If you’re working on financial retirement planning , here are some tips on money management that may help you get off on the right foot.
Tips for budgeting in retirement
Striking the right balance between enjoying your retirement and having enough to live on can be tough. However, you don’t have to go without —you may just need to consider your budget a bit differently.
After using a retirement calculator to see how much you think you’ll need, and evaluating how much you’ll receive through a pension or super, you can start to work on your budget for retirement.
Look into having a U-shaped budget
Rather than a linear budget, where your expenses remain the same year after year, it may be worth considering a ‘U-shaped’ budget in your retirement. This is where your spending over the period of your retirement resembles a ‘U’, with the highest expenses in the first years of retirement and your later retirement years.
When you first retire, your spending will most likely be higher as you take that trip of a lifetime, splash out on that caravan or boat, or pay off your home loan (or all of the above) and engage in an active, and possibly more expensive, social life.
Your spending is then likely to settle into a more regular pattern in mid-retirement, before increasing again in your later years when greater healthcare costs and aged care expenses come into the mix.
Consider where you can save money
Although you may not have a steady income like before, it’s still possible to save money so you have more to spend on what’s important to you during your retirement, either by leveraging some of the government’s benefits and subsidies, or by reducing your expenses.
Here are a few ideas to get started:
- Consider selling your second car (if you have one), and take advantage of public transport concessions available to seniors instead. You may be able to save on registration, insurance and maintenance costs associated with having a car, plus you’ll be doing your bit for the environment.
- Take a look at government websites such as My Aged Care to learn about benefits and payments that you may be able to access, such as pensions, allowances, bonuses, concession cards, supplements and other services.
- Consider bundling your phone and broadband to save on technology and your electricity and gas to save on energy costs. Compare providers’ rates through comparison websites and ask if they offer a senior’s discount.
- Think about ideas to entertain more at home instead of going out, such as dinner parties, game nights or movie nights. It also may be handy to subscribe for newsletters to your favourite restaurants and shops, or invest in a coupon book like the Entertainment Book, so you can take advantage of any offers and special deals to use when you do go out.
- It may be worth putting your bills onto direct debit rather than paying them month by month. This way, you may be eligible to qualify for the pay on time discounts, and avoid late payment fees if you forget a payment.
- Groceries are a necessary expense, but it’s possible to save money here as well. Consider researching online for sales ahead of time, buying seasonally for fruits and veg or buying in bulk and sharing with family or friends.
Tips for paying off debt in retirement
Carrying debt into retirement isn’t ideal, but it’s a reality for many of us, with 44% of Australians over 65 having some level of household debt2. If you find yourself owing money on your credit card, a personal loan or home loan once retired, there are things you could look into to help manage your repayments and minimise the amount of interest you pay.
Consolidating your debts by bringing them together into one loan could mean you pay less in interest, fees and charges. You could also contact your providers to try to renegotiate your repayment terms.
How much super should I have, and can I use this to pay off debt?
Some Australians also withdraw their superannuation as a lump sum once they reach their super preservation age and use it to clear their debts, to avoid having any repayments and interest during retirement.
If you’re considering this, think about whether you’ll still have enough to live on in retirement, and the tax implications of doing this. In this case, it’s a good idea to speak with a financial adviser to weigh up your options.
Tips if you’re helping out your family financially
If you’re part of the ‘sandwich generation’, with elderly parents who are dependent on you and adult kids who are still at home or who continue to need a bit of financial assistance, it’s still possible to have a good quality of life in retirement.
In order to do so, it’s all about finding balance. It’s important not to lose sight of your own goals during retirement, while still helping the ones you love. You may consider having some conversations with your parents on the limits of what you can provide, and spend more time to help them understand the benefits of financial independence: for example, instead of financial assistance, perhaps you can help them with some invaluable financial education.
Meanwhile, if you are in a position to help out financially and you’d like to give the next generation a leg up, it could be worth speaking to a financial adviser to understand how gifting or going guarantor on a property might affect your tax and your lifestyle in retirement.
Tips if you’re estate planning
Estate planning is also an important part of your financial planning in retirement. Estate planning goes beyond just making a will. It can also be valuable to think about who your super beneficiaries are, and how you want to be looked after (both medically and financially) if you can’t make your own decisions later in life.
If you get your estate in order during the early years of retirement, it means more peace of mind in the long term and could potentially help prevent some family tensions in the future.
When planning your estate, here are some key things to think about.
Who will get your assets?
Making a will plays a big part in estate planning. A solicitor or estate lawyer can help you draw up a legally binding document that advises who should receive your assets after you pass away. If you don’t have a valid will, your estate will be distributed in line with the law in your relevant state.
Who is your executor?
An executor is the person who is responsible for making sure your assets are distributed according to your wishes, as well as paying bills, closing any banks accounts, and so on.
Who are the beneficiaries for your super?
Your super is often treated differently to the other assets in your will, so it can be beneficial to think about this as a separate aspect. Consider how you want your super to be distributed after you’re gone and try to keep your super beneficiary nomination up to date. If you don’t, there’s a risk that your super money may end up in different hands.
Who is your enduring power of attorney and/or guardian?
If you have an enduring power of attorney, you are allowing someone to make financial decisions on your behalf. In some states, your power of attorney holder can also make lifestyle decisions, such as health and medical choices and where you live, while in others you’ll need to appoint a separate guardian to do this.