If you haven't given any thought to what your retirement will look like, now's a great time to start. It might not be the most fun thing to think about—not when there are vacations to plan or houses to buy—but retirement planning is a vital part of your overall financial plan.
Most people dream about the day they no longer have to work. They dream of having a leisurely coffee in the morning without running to a meeting or they want to spend six months of the year visiting exotic locations. Being able to do so requires planning. It means you have to think about your financial future and take steps to make sure you can afford the lifestyle you want to live.
Here are some things to do before you retire.
Examine your retirement needs
Before you can even begin to think about how to save for retirement, you need to know what you want your retirement to look like and how your finances will affect it. Consider how you want to live in retirement. Will you want to travel a lot? Downsize your home? Have your regular home and a holiday spot? Will you need to renovate your house?
You also need to know what you'll have to pay for, and how. Do you currently own a home but plan to sell it to move into something smaller? Will your home be paid off by the time you retire? Do you want to maintain certain investments in your senior years or would you prefer to be liquid?
Next look at the income you'll have. What will your current investments likely provide for you as you age? What will your pension be? Will you have income you can count on beyond a pension? Are you eligible for other entitlements?
Having a firm understanding of how you want your life to look as you age and what money you'll have to live off will help determine how you can start saving today for retirement and help you sort out when you can afford to retire.
Deal with your debt
Next you need to look at the debt you currently have and make a plan to deal with your bad debt. Although many people think all debt is bad, in truth there is good debt. Good debt is part of a strategy that builds your wealth over time. Owning a home can be good debt. Bad debt takes away from your wealth. This may be through interest, such as on credit cards for example.
Retirement will be less financially stressful if you can reduce your bad debt before you retire—and preferably well before you retire. Then examine whether there are other financial matters that need addressing. Do you have a current will? Is your insurance up to date? Should your investments be reviewed? Is it worth it to make additional superannuation contributions?
Once you know what you want your retirement to look like and you have an idea of your finances, you need to develop a financial plan. Retirement savings don't just happen with good intentions. It takes planning, saving, and understanding what financial vehicles are best for you to make your dreams a reality.
Talking to us can help you sort out what you need to do now, a few years in the future and as you enter retirement to ensure you're as financially comfortable as possible.