Retirement Planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. 

Retirement planning includes identifying sources of income, estimating ongoing expenses, implementing a savings program and managing one’s assets. Future cash flows are estimated to determine if the retirement income goals are likely to  be achieved.

A Definition of ‘Retirement Planning’

In the simplest sense, retirement planning is the planning one does to be prepared for life after paid work ends, not just financially but in all aspects of life. The non-financial aspects include such lifestyle choices as how to spend one’s time in retirement, when to completely cease formal employment, future accommodation needs, future health needs, location of family and friends etc. A holistic approach to retirement planning considers all of these important factors that may affect your senior lifestyle choices.

The emphasis one puts on retirement planning changes throughout different life stages. Early in a person’s working life, retirement planning is primarily concerned with setting aside enough money for retirement. During the middle of an individual’s career, it might also include setting specific income or asset targets and taking the steps to achieve these. In the few years leading up to retirement, financial assets are more or less determined, and so the emphasis changes to more non-financial, lifestyle aspects.

What is the ‘Spending Phase’?

The ‘Spending Phase’ period in a person’s life follows on from retirement, in which earning income has ceased and the person is living off a Government pension, superannuation funds, investments and/or money saved specifically for retirement.

During the ‘spending phase’ of a person’s life, income may decrease substantially, but this usually also coincides with a decrease in expenses. Children are usually no longer dependent on their parents in the ‘spending phase’, and major assets (such as mortgages) may be paid off. Traveling, hobbies, personal interests and basically enjoying one’s retirement are the principle goals of someone living in their ‘spending phase’.

What is ‘Retirement Readiness’?

‘Retirement readiness’ typically refers to being financially prepared for retirement or the degree to which an individual is on target to meet his or her retirement-funding goals, so that the standard of living enjoyed while working will be able to be maintained after retirement.

Although ‘retirement readiness’ depends on each person’s financial situation, many financial experts believe that retirees need between two-thirds and three-quarters of their pre-retirement income in order to maintain the same standard of living in retirement as they enjoyed when they were working.

Financial readiness is only one part of being ready for retirement. Being prepared mentally, socially, emotionally and physically are also important; you will also need to take part in activities that will satisfy these aspects of your life. Knowing where you will live, when you will retire and whether you will go back to some other form of work or school are all important aspects of financial readiness.

What is ‘Forced Retirement’?

‘Forced Retirement’ is the involuntary ending of one’s career because of a layoff, health problems or disability. Forced retirement can have a significant negative effect on workers’ retirement plans if they are unable to earn several years’ worth of income that they anticipated and/or they are forced to take Government or Superannuation benefits early. However, just because a worker is forced to retire from one company does not mean he/she can’t seek employment with a different company or pursue self-employment alternatives.

When most people think of retirement, they think of choosing when they will leave their jobs – usually when they have reached a certain age or accumulated enough savings to live off of comfortably for the rest of their lives.

‘Forced retirement’ usually removes this choice from people and can be disruptive to future plans. Sometimes companies that downsize will offer employees who are close to retirement age an early retirement package. This is basically a severance package by another name. In some cases, these may be employees who would have been fired no matter what because of poor performance; in other cases, companies may want to cut older workers because they tend to have higher salaries than younger workers.

What is ‘Transition to Retirement’?

The Australian Government has made it possible for you to keep working while drawing down some of your super benefits. The policy, called ‘transition to retirement’, allows you to supplement your salary and maintain a comfortable lifestyle. You can also use this policy to save tax and boost your super before you retire.

‘Transition to retirement’ is a flexible option that allows you to work longer and retire later and rewards you for staying in the workforce. As it can be complex, we would suggest that you discuss your options with your super fund and seek additional financial advice if necessary.

To carry out further research on your own please visit the Australian Federal Government’s Money Smart website as follows:

MoneySmart – Transition to Retirement

MoneySmart – Retirement Income Planning

MoneySmart – Financial Advice

If you require further advice from a professional ‘Financial Planner’ ,please use our Business Search Directory to find a suitable provider near your location.