From property to superfunds, give yourself financial comfort in retirement with these do’s-and-don’ts when investing in Australia.
As you approach retirement, planning your investments is one of the most important steps to ensure you can enjoy the years ahead. Thinking about this phase as a new chapter, not just a final destination, will allow you to approach your financial strategy with confidence and clarity. Here are some key considerations to keep in mind when it comes to your investments.
1. Consider Your Time Horizon and Risk Tolerance
While retirement may be right around the corner, it doesn’t mean you should shy away from investing altogether. Depending on your situation, you may need your retirement savings to last for 20 or even 30 years. A diversified portfolio can help you manage risk while still allowing for growth over time. Ask yourself how comfortable you are with market volatility. If you’ve typically invested in higher-risk assets, you might consider shifting to a more balanced approach as you prepare for retirement. However, be cautious of going too conservative too soon, as this could erode your purchasing power due to inflation. For tips on building a retirement investment strategy, check out Moneysmart’s guide on investment options.
2. Think About Income Streams
Do you know where your income will come from in retirement? Relying on superannuation alone may not be enough to support the lifestyle you envision. Annuities, rental income from investment properties, and dividends from shares are just a few examples of alternative income sources. The idea is to build a strategy that will supplement your super and provide reliable cash flow over time. Additionally, it’s a good idea to understand how each of these income sources will be taxed, as this can impact your overall financial health in retirement. Learn more about retirement income options on the Australian Government’s Superannuation and Retirement website.
3. Factor in Health Care Costs
Healthcare is a significant expense that can increase as you age. If you’re retiring in Australia, keep in mind that Medicare doesn’t cover everything, and out-of-pocket costs can add up, especially if you need long-term care. It’s worth considering whether to keep private health insurance, as this can help offset some of these expenses. Additionally, make sure your investment strategy allows for a fund dedicated to health-related expenses. Preparing for the unexpected by earmarking a portion of your investments for healthcare can reduce stress if health issues arise. Find out more about healthcare costs in retirement here.
4. Plan for Longevity
People are living longer than ever, which is great news, but it also means you need to be prepared financially for a long retirement. Ensure your investments will support your income needs for decades, not just a few years. Consider options like income drawdown strategies with your superannuation or a pension. One popular approach is to have a portion of your investments in growth assets, such as shares, even during retirement, as this can help your nest egg keep pace with inflation. To learn about income drawdown options, visit their website.
5. Have a Withdrawal Strategy in Place
How you withdraw from your retirement accounts can impact how long your savings last. Drawing down on tax-free or lower-taxed accounts first can potentially stretch your nest egg further. Start by considering the order in which you’ll tap into different investment accounts. Remember, you may also have options for making lump-sum withdrawals for significant expenses or regular withdrawals to cover your monthly expenses. Developing a smart, tax-efficient withdrawal strategy will help ensure your money lasts throughout your retirement. Get a better understanding of withdrawal strategies here.
6. Seek Professional Advice
While it’s crucial to understand the basics of managing your investments as you transition into retirement, speaking with a financial adviser can provide you with tailored guidance. They can help you review your current investments, estimate your future income needs, and build a strategy that meets your unique goals. A financial adviser can also help you stay updated on tax laws and investment options, which may be essential to maximizing your retirement income. To find a financial adviser, visit www.faaa.com.au or www.moneysmart.gov.au/financial-advice.
Retirement is an exciting new chapter, and with careful planning, your investments can help you achieve the lifestyle you desire. By taking these considerations into account now, you’ll be setting yourself up for a financially secure and fulfilling retirement.
Now is also the perfect chance to ask How Does Your Super Fund Stack Up? And learn if you should get insurance through your superannuation fund here.
