How to Start Planning for Retirement in Australia

Planning for retirement can feel overwhelming.

There is superannuation to understand, the Age Pension to consider, debts to manage, living costs to estimate and some fairly big questions about what you actually want your retirement to look like.

The good news is that you don't need to work everything out at once.

A good retirement plan starts by understanding where you are today and then working through the important decisions one step at a time.

Whether you're in your 50s, approaching retirement in your 60s or simply wondering whether you've left it too late, here are some practical steps to help you get started.

1. Decide What You Want Retirement to Look Like

Before worrying about numbers, think about the life you're actually planning for. Retirement means different things to different people.

You might want to:

• Stop working completely.
• Reduce your working hours gradually.
• Travel around Australia or overseas.
• Spend more time with family.
• Move somewhere smaller or more affordable.
• Stay in your current home.
• Volunteer or pursue hobbies.
• Continue working occasionally.
• Simply have more control over your time.

You don't need every detail worked out.

Start with a rough picture of the retirement you would like and an approximate age when you'd like to achieve it. That gives the financial side of your retirement plan something to work towards.

If travel is part of your plan, map out the trips and costs with the Retirement Travel Planner

2. Work Out Where You Stand Financially

Before asking, “Do I have enough to retire?”, work out what you already have. Create a simple snapshot of your current financial position.

Include:

• Your superannuation balance.
• Bank accounts and savings.
• Shares and other investments.
• Investment properties.
• Your home.
• Mortgage balance.
• Credit cards.
• Personal loans.
• Other debts.
• Other assets or sources of income.

Don't worry if the numbers aren't where you hoped they would be. The purpose of this exercise isn't to judge your financial position. It's to understand it.

You can't build a useful retirement plan until you know your starting point.

3. Check Your Superannuation

For many Australians, super will be one of their most important sources of retirement income. But knowing your balance is only the beginning.

Check:

• Your current super balance.
• How much is being contributed.
• Your investment option.
• The fees you're paying.
• Insurance held through your super.
• Whether you have multiple super accounts.
• Whether your beneficiaries are up to date.

You should also understand when you may be able to access your super and what conditions of release apply.

Accessing super and qualifying for the Age Pension are separate things, and the rules surrounding them can affect how you structure your retirement.

Moneysmart explains the general rules for accessing your super and retiring

To get your super organised in one place, see the Superannuation Master Workbook

4. Work Out What Retirement Might Cost

One of the most important questions in retirement planning is: how much will I actually spend?

Start with what you're spending now. Look at expenses such as:

• Housing.
• Food and groceries.
• Electricity and utilities.
• Insurance.
• Transport.
• Medical and healthcare costs.
• Rates and home maintenance.
• Entertainment.
• Holidays and travel.
• Hobbies.
• Family commitments.
• Unexpected expenses.

Some expenses may fall when you retire because you're no longer commuting or paying other work-related costs. Others may increase.

You might travel more during the early years of retirement, spend more time at home or eventually face higher healthcare costs.

Your retirement budget should therefore reflect your lifestyle, rather than simply relying on somebody else's idea of how much a retiree needs.

To build a realistic retirement budget line by line, use the Retirement Budget Planner

5. Understand Where Your Retirement Income Could Come From

Retirement income doesn't necessarily come from one place. Depending on your circumstances, it could include:

• Superannuation.
• The Age Pension.
• Personal savings.
• Shares and investments.
• Investment property.
• Part-time employment.
• Business income.
• Other assets.

Many Australians may use a combination of superannuation and the Age Pension during retirement.

Understanding how these different sources might work together is an important part of building your retirement plan.

For mapping out an income stream from your super, see the Pension Planning Workbook

6. Learn How the Age Pension Fits Into Your Plan

Even if you expect to have a reasonable amount of super, don't automatically assume the Age Pension won't be relevant to you.

Age Pension eligibility depends on several factors, including your age, residency, income and assets. Australia's current Age Pension age is 67.

The amount you may receive depends on your circumstances and the applicable income and assets tests. Your eligibility can also change during retirement.

Someone who doesn't initially qualify for an Age Pension may potentially become eligible for a part pension later as their financial circumstances change.

This is why your super and the Age Pension shouldn't necessarily be viewed as two completely separate parts of retirement planning. They can form part of the same long-term retirement income strategy.

Current eligibility rules and payment rates are published by Services Australia: Age Pension

To keep your Centrelink paperwork and figures together, see the Government Benefits Planner

7. Look at Your Debt Before You Retire

Debt can have a major impact on retirement. Look carefully at:

• Your mortgage.
• Credit cards.
• Personal loans.
• Car loans.
• Investment debt.

Then ask yourself: what debt do I want to be carrying when my regular employment income stops?

Reducing debt before retirement may reduce the amount of regular income needed to meet repayments after work stops.

But don't automatically withdraw money from super or sell investments simply to eliminate debt without understanding the consequences.

Large financial decisions around retirement can affect tax, superannuation and potentially Age Pension eligibility.

8. Don't Forget the Things That Aren't Super

Retirement planning is about much more than building a super balance. It's also worth reviewing:

• Your will.
• Powers of attorney.
• Superannuation beneficiaries.
• Insurance.
• Emergency savings.
• Important financial documents.
• Housing plans.
• Future healthcare needs.
• Potential aged care considerations.

These might not be the exciting parts of retirement planning, but they can become extremely important later.

To gather wills, beneficiaries and key documents in one place, use the Estate Planning Organiser

9. Run Different Retirement Scenarios

A retirement plan shouldn't rely on everything going perfectly.

Try asking:

• What happens if I retire at 60?
• What if I work until 65?
• What if I work part-time for several years?
• What if my retirement expenses are higher than expected?
• What if investment returns are lower?
• What if I qualify for some Age Pension later?

Testing different possibilities can help you understand which decisions have the biggest effect on your retirement.

It can also show you that retirement isn't necessarily one fixed date. For some Australians, gradually moving from full-time work to part-time work and then into retirement may be a better option.

For working through the numbers behind each scenario, see the Retirement Calculator Pack

10. Turn Your Numbers Into a Simple Retirement Plan

Once you've gathered the information, bring it together. Your first retirement plan doesn't need to be complicated.

You should aim to understand:

• Where am I now?
• Where do I want to be?
• How much might I need?
• Where will my retirement income come from?
• When could I realistically retire?
• What do I need to change between now and then?

That's the foundation of a retirement plan. From there, you can review it regularly and make adjustments as your finances, goals and Australian retirement rules change.

When Should You Start Planning for Retirement?

The simple answer is: as early as you can.

But if you're already in your 50s or 60s and haven't done much retirement planning, that doesn't mean you should give up. Starting today is more useful than worrying about what you could have done ten years ago.

Even relatively close to retirement, you may still have decisions available around your spending, debt, super contributions, investment strategy, retirement date and whether you continue working.

The first step is simply getting organised.

Moneysmart also has a general guide to retirement income and planning

Retirement Planning Doesn't Have to Be Complicated

You don't need to understand Australia's entire retirement system before you begin. Start with the basics.

• Know what you have.
• Understand what you owe.
• Think about the retirement lifestyle you want.
• Estimate what it could cost.
• Understand your super.
• Learn how the Age Pension could fit into the picture.

Then start putting those pieces together.

Retirement planning becomes much easier when you stop looking at it as one enormous financial decision and start treating it as a series of smaller decisions you can work through one at a time.

Ready to Start Planning Your Retirement?

We've created a simple free 10-Step Retirement Planning Checklist to help you work through the important areas of your retirement planning without feeling overwhelmed.