Trying to plan for your retirement, but finding that there’s a lot of noise out there, leaving you unsure about what to believe?
With so much information available on social media and the internet about retirement, we thought we’d cover 10 common myths in this article.
1. I should wait to save for retirement until after the kids leave home
A common misconception about retirement is that you should wait until you’re empty nesters to start taking retirement seriously.
However, it’s never too early to start saving for your retirement and you should do so as soon as you begin your working life. In addition to employer superannuation contributions, you can make personal contributions on top of this to grow your nest egg faster.
Many people believe that it’s too early to worry about saving for their retirement in their 20’s and 30’s, however this is the ideal time to boost your savings and investments, because your disposable income will be higher when you don’t have dependents to care for.
After starting your own family, it’s important to continue contributing to your retirement savings, and once the kids leave home, it’s the perfect time to refocus and use the extra funds that you are no longer allocating to family expenses towards your retirement plan. You may be surprised at how much you can save!
2. At least $1 million is needed in superannuation for retirement
It may be overwhelming to think that you need to have at least $1 million dollars in your superannuation in order to retire comfortably. Yet this is not necessarily the case.
While obtainable for some, for others, this goal may feel completely out of reach. The good news is that there’s no one size fits all to how much you require. Whether you need $40,000, $70,000 or $100,000 per annum at retirement will depend entirely on your individual circumstances, such as whether you’ve paid off your mortgage, have passive income streams, along with the lifestyle that you wish to maintain.
If you’ve come to the party later in life, there are still ways for you to increase your retirement balance that will allow you to reach your future goals, such as consolidating your super into one account, downsizing your place of residence to a smaller property and putting the surplus into investments, increasing your income or reducing expenditure in the short term in order to have more available when you reach retirement.
3. I can rely upon the age pension for my retirement income
When it comes to retirement, most people will qualify for either a part or full pension, however those expecting to rely fully upon these payments may find that they are in a position where they cannot fully fund their ideal lifestyle.
As with anything in life, it’s important to have your eggs in more than one basket and consider the age pension as just one of multiple income streams. In retirement, you will need a combination of superannuation, personal savings and investments, as well as the age pension in order to live comfortably.
How much you can expect to earn from these additional income sources will depend largely upon your financial goals and what is reasonably obtainable for you, depending upon the stage of life that you start saving, the location in which you live, your occupation and a combination of other factors.
4. The government will look after all of my healthcare needs
Another common myth to be debunked is that the government will look after all of your healthcare needs in retirement and that you don’t need to save for aged care.
There may be medical bills that come up as you age that you need to tend to, or as you get older in the later years of life, you might find that you need to access aged care services, such as moving into a nursing home or being cared for in your own residence.
Aged care subsidies do exist, however these payments are means tested and out of pocket fees are determined through a personal wealth assessment. This means that you may be required to use your savings or assets and should consider this in your plan.
There are other important considerations you can make now about your health, including diet and exercise, to give yourself the best chance at staying fit and healthy as you age.
5. I shouldn’t retire until my mortgage is paid in full
One of the key factors to reducing the amount of expenses that you will have in retirement is to ensure that you’ve paid off your mortgage.
However, while this may be necessary for some individuals and couples, there are some scenarios in which it might be possible to retire at the age you have planned, even if you still have debt on your family home.
For example, you may be able to afford to pay your mortgage, due to having obtained a higher level of savings and investments. This way, you can comfortably fund your retirement, without the need to have paid off your mortgage.
Or perhaps you are close to paying off your mortgage and choose to semi-retire whilst continuing to work part time to provide an additional income source. This may have many benefits for you, including maintaining mental cognition, social interaction with peers and allow you to continue topping up your superannuation fund.
6. Early retirement is only for the super rich and successful
Early retirement is defined by those who choose to stop working before they qualify for the age pension.
It might sound like a pipe dream, however there are many strategies that can be employed to allow you to retire early, without requiring you to have absorbent amounts of money in savings and investments. However, it comes down to the lifestyle you wish to live and how much it costs to do so. If you’ve invested in shares or property, for example, earlier in life, you might be able to use the capital gains to fund your early retirement.
There are many people who may wish to travel when they still have the energy and enthusiasm to do so, who may decide to work remotely or semi-retire by choosing part time hours instead, to make more time for leisure activities.
Like anything, the key is to have a robust plan in place, where you can understand what is possible for you financially based upon your individual situation.
7. My inheritance will be enough to take care of my retirement
Nothing in life is guaranteed and although some of us may have the privilege of receiving significant inheritance to fund our retirement, it should never be relied upon solely.
What happens to other people’s assets is out of your control, therefore you cannot assume that they will be part of your inheritance. For example, your parents might require aged care services, which depletes their funds immensely or even entirely.
Or, they might decide to utilise most of their savings to tick off those bucket list items – and at the end of the day, most people would prefer to see their loved ones enjoy their senior years and get the most out of life, rather than holding onto it for inheritance purposes.
Therefore, inheritance shouldn’t be factored into your retirement strategy until you actually receive the funds.
8. I will need to stop working fully by retirement age
It’s a myth that you need to stop working by retirement age and in many instances, it’s actually in your best interests not to. Some people feel unhappy when they retire, because their careers provide an outlet for creativity, lifelong learning and a way to make a difference in the world.
Rather than retiring fully, you might choose to continue working into your retirement by reducing to part time hours, or volunteering in a non-profit organisation in order to share your wealth of knowledge and experience that you’ve gained throughout your working career.
Whatever you choose to do, it needs to be right for your personal situation and there is no ‘one size fits all’ to whether you should stop working fully by retirement age.
9. Retirement planning is only about about money
There are so many benefits to retirement that should be considered and while it’s essential to have a financial plan in order to fund your lifestyle, retirement planning is not just about having enough money to do so.
Considerations need to be made around the type of life you want to live, including the activities you would like to enjoy, where you want to reside, plans to travel, time with family and making memories through new experiences.
Some people might prefer to retire earlier on less, and reduce their expenses to a level where they can make the most of the simple things in life. Others may prefer to have a larger nest egg in order to treat themselves to more of a lavish lifestyle.
Whatever your goals are for retirement, there is much to consider as part of your strategy.
10. Financial advisers are for investments, not retirement planning
Many people turn to financial advisors when they are making decisions around investments or have come into inheritance and would like advice around how to best use the funds.
However, not everybody seeks financial advice about their retirement, yet by doing so it is possible to reduce confusion or overwhelm of trying to work it all out on your own.
By speaking to a financial adviser you can have your questions answered and put a plan in place for your future. For example, you might like to ask how long your super will last, how much you can expect to receive from age pension entitlements, or whether you should downsize your property and invest it into your super.
If you are in a position where you’re ready to seek financial advice, The Moreton Group is here to help. We’d love to meet you and discuss your plans for retirement.