Including how you can invest your money in line with your needs

For many Australians, retirement and freedom go hand in hand. And so they should! 

But… deciding how you will generate the income you need to be free in retirement can be a daunting process. With so many income strategies to choose from, it’s essential you make the right choice to enjoy your best version of retirement. 

You’ve worked hard to get where you are and you deserve to sit back and enjoy this long-awaited freedom. But it also means living on a fixed income for an uncertain amount of time, which can be a little unnerving. Especially so if you’re accustomed to receiving a regular salary coupled with that end of year bonus. 

Nobody knows how long they are going to live, and while everyone hopes to live a long, happy and healthy life in retirement – your longevity also brings about the need for more income to live off.

Which is why it’s so important to start planning out your retirement income now.

You may already know about the most common income strategies for your retirement – like your superannuation and the Centrelink Age Pension, but you may not be aware of some of the alternate strategies you can utilise to generate income during retirement.

Here’s 4 time-tested, alternate strategies you can consider for your retirement plan:

  1. Use an annuity to avoid unpredictability

An annuity, also known as a lifetime or fixed-term pension, involves investing a certain amount of money to a superfund or life insurance company, and in exchange you receive a guaranteed income over time in your retirement. 

You can choose how long you want your payments to last:

  • A fixed number of years
  • Your life expectancy
  • The rest of your life

You can also choose the payment amount that you want to receive and how often you want to receive them.  

What many retirees love about an annuity strategy is that it provides you with a guaranteed source of income, something which can deliver much needed peace of mind during your golden years.

But this strategy isn’t for everyone. Annuities can carry high fees and tend to be less flexible than other strategies. 

  1. The Bucket Strategy for long-lasting savings

This strategy involves quite simply splitting your savings into three buckets for you to access at different stages of your retirement. 

The goal is to make your money last longer by investing them into varied, suitable assets. How it works is that you continue to fill your first bucket from the money earned from the other two buckets, so you only ever take income out from bucket #1

  • 1st bucket: this is sometimes referred to as your “cash bucket” and is designed to fund your short-term retirement lifestyle (approx. 1-3 years) as well as hold emergency funds for you. 
  • 2nd bucket: The second bucket is for money you plan to spend within the next 3-10 years and holds income-generating investments for you to use once your first bucket has run dry.
  • 3rd bucket: Your final bucket should hold your savings that you don’t plan to use for at least a decade. The idea is for this bucket to be invested in growth investments so your savings will grow and last longer. 

The three-bucket strategy is quite common, but the number doesn’t have to be three. Check out Rice Warner’s four-bucket approach that may work better for your situation.

  1. Transition to Retirement to save on tax

A transition to retirement (TTR) strategy allows you to access some of your super and keep working at the same time.

This way if you decided to work less hours, you can top up your income from your super account. You will also still be able to receive super contributions from your employer. And even better, your TTR payments may be tax free depending on your age.  

Setting up this strategy can be complicated. It is best to seek professional advice to ensure your TTR approach is a success.

  1. Change the way your super is invested for your life stage 

You can decide how you want the funds within your super to be invested, to ultimately ensure this suits your needs in retirement.

Here are the four main types of superannuation investment strategies:

  • Growth: aims for higher average returns in the long-term. However, this can also mean higher risks and higher losses during bad years.
  • Balanced: the goal is reasonable returns but less than growth funds to reduce the risk of losses.
  • Conservative: you will receive a lower return over the long-term but the objective is to reduce the risks of losses. 
  • Cash:aim is to guarantee your savings are not reduced by losses on investments, but you must alternatively consider what the impact that inflation in on the value of your cash over time.

There’s no one size fits all when it comes to how your super is invested. Each option has different benefits and different risks. 

In my experience, the biggest risk of all is thinking that super is something you don’t have to worry about until retirement – this is a huge missed opportunity.

It’s the small actions taken today, which can have an enormous positive impact on your retirement.Want to know how a different investment strategy will affect your super balance? Use ASIC’s MoneySmart superannuation calculator to help you plan for your future.  

No matter your goals and aspirations for retirement – whether you’re planning to spend more time with the grandkids, or pack up and experience the world – you deserve to be stress-free when it comes to your money.

Having a solid retirement plan, one which incorporates the best strategies for your situation, is the key to living the kind of worry-free retirement too few people get to experience.   

Not sure where to get started? Contact us for a complimentary initial appointment with one of our Retirement Specialists. We have offices located in Newcastle – The Junction (NFPG), Central Coast – Erina (CCFPG) and  Sydney CBD (SWA).

 

DISCLAIMER:

The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group and Sydney Wealth Advisers are subsidiaries of Coastal Advice Group which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.