“We have always proactively saved for the future,” she says. “We have worked hard and we would consider downsizing the family home in the future to help support our financial future.”
It is important to them to ensure when they do retire, the amount they have to live on each year will secure a comfortable lifestyle.
“We’ve spent our working life looking forward to retirement. We would like to know we’re comfortable enough to replace the car and maybe go on a holiday, if that’s what we choose to do. Because they are all the things we didn’t do building up our financial security,” she says.
The Pernas have a range of investments to support their lifestyle in retirement, for instance an investment property, in addition to the family home. “We have taken some risks but we’ve never been too aggressive. The global financial crisis affected our share portfolio dramatically. From that we became aware of the pitfalls of just relying solely on shares,” she adds.
They also ensure they have the right insurances in place to protect their health and their income. “We’ve always had life insurance and we’ve made sure we’ve insured our home and our health. But you also need to ensure your retirement savings are sufficient so your pot of money has got enough in there that you’re comfortable with a health challenge as well.”
Kaylee Garden, a financial planner with Garden Financial Services, says it is essential to seek financial advice when preparing a retirement strategy.
“You need to think through your strategy well before you retire – many years before, in fact,” she says.
Garden says this allows pre-retirees to take advantage of a range of wealth management tools, for instance maximising contributions that can be made to a superannuation fund. This also has tax benefits.
“If appropriate, many people find it useful to take full advantage of the contribution limits to put money into their super fund,” she says.
To work out how much you will need in retirement, the first step is to complete a budget to work out how much you will need to live on each year.
“This really comes down to the individual,” Garden says. “People may say you need a certain amount of money to retire, but this all depends on the type of retirement that you personally would like. It’s important to remember that longevity risk is a big thing. If you don’t think your funds will last, you may need to postpone your retirement to ensure you have enough savings to last your lifetime.”
When it comes to putting together a financial plan, this starts with looking at your assets and working on a strategy to position them to generate the best possible financial outcome to meet your needs in retirement.
It is also important to consider how best to structure assets to take advantage of any government benefits, such as the Age Pension, to which you may be entitled.
Garden notes putting in place a lifetime annuity with some of your savings may allow you to maximise Centrelink benefits.
Lifetime annuities also give you a set level of income each year. They can be indexed annually, which is useful in maintaining a base level of income that keeps pace with inflation. As lifetime annuities last until the end of your life, they can also provide you with peace of mind you will have enough income no matter how long you live, or how share markets perform. This is also useful during periods when interest rates are at record lows.
Everyone will have a different perspective about what their preferred retirement looks like. What is important is to start planning early and consider all potential options to ensure you remain financially stable when you do leave work for the last time.
If you’d like to find out more about how to look forward with confidence in retirement, download Challenger’s “A guide to a confident retirement”.