5 top tips if you’re 5 years from retirement
- Financial Planning
That final five years before you take the leap into retirement is a vital time to take a serious look at your lifestyle and to make some realistic projections about what retirement life will be like. To help you take full advantage of the opportunity here are a few easy tips to help you hit the ground running.
1. Face the fact that retirement will happen
In the hustle and bustle of working life it can be hard to give serious thought to what retirement will actually be like. It tends to remain as a nebulous concept that will always be in the future. Going blindly toward retirement like this can result in a real shock once you actually get there.
The first step in the years leading up to retirement, therefore, is to really come to grips with what retirement means. How will your daily life change? What adjustments will you need to make personally, socially and financially? Our working lives can end up forming so much of our identity that it may be difficult to break out of that mould, but it is a challenge we need to face. Sooner or later we will need to stop working – and for some of us it may even come sooner than you think, given the prevalence of redundancies in some industries.If you want to live the remainder of your life without regrets, then take the time out to visualise your retirement life right now and identify the changes that will need to be made.
2. Put your budget under the microscope
One of the planning priorities in the run up to retirement is projecting and adjusting your personal budget. Of course some expenses, such as school fees and mortgage repayments may be tailing off as you get closer to retirement, but that shouldn’t stop you from taking a hard look at your other living expenses to find ways you can trim things down. Remember you may be retired for around a third of your total lifetime and life expectancy is on the increase, so controlling the expense side of your retirement is vital to ensuring you don’t ‘outlive your money’.
Consider some of the luxuries of life that you could cut back on, such as eating out, downsizing your monthly phone plan to something and shopping smarter for things like clothes, groceries and appliances. Become familiar with online second hand and classified ad sites - they can save you hundreds. Get used to working within a budget for everyday living costs and start doing it well before you retire, so you can test how realistic your expectations are. This can also help you plan the income side of your retirement and whether you need to make adjustments to retirement savings or perhaps considering extending your retirement age by moving to part time work.
3. Get smart about your retirement saving strategy
With five years to go until retirement, there is really no time to lose in projecting how much you need in retirement income and the savings you will need to achieve it. You can then attack any shortfalls by boosting your super or other investment plans. One of your greatest allies in this respect is the tax system. Significant concessions may be available if you want to make large contributions and if you are employed salary sacrificing may enable you to accelerate your super accumulation with help from the taxman.
Special opportunities may also open up in the years leading up to retirement through what is known as a ‘transition to retirement’ strategy. This involves gaining limited access to some income from your super before you retire, while at the same time re-directing more of your earned income into your super. It may sound a bit of a juggle, but the net tax benefits can be surprisingly attractive.
This is where a financial planner can be of invaluable assistance. There are so many issues and opportunities to consider that it really can help if you have the trusted counsel of an adviser who ‘knows the ropes’ and can direct you to take full advantage of the system.
4. Good health is one of your greatest assets
Approaching retirement can be a time when we start to realise our own mortality. Perhaps a friend or two has passed on suddenly or are struggling with diabetes or cancer – it can make us realise how fragile life can sometimes be.
Fortunately it is never too late to take positive steps toward improving health. If you are a bit overweight, take some action on diet and exercise – it doesn’t need to be drastic, just ease into a healthier routine. Walk instead of driving the car. Enjoy good food, but cut down portion sizes. Take regular check-ups with your GP. Start playing tennis, swimming or some other gentle sport. Getting into such habits now will set you up both physically and socially for making the transition to retirement.
The benefits not only relate to longevity and enjoyment of life, they can also have a significant financial impact, since health care costs can be a major expense in retirement. Staying healthier is good for the waste line and the bottom line.
5. Rationalise your assets and debts
The years running up to retirement are a good time to take a close look at your asset and debt situation. For example, the family home may be a little emptier than it once was and it may be time to consider downsizing in advance of retirement. This may enable you to clear a mortgage, pay off other debts and free up equity to invest for capital growth and future income generation.
It is also a good time to look at your other personal debts like credit cards and personal loans. They may be cluttering up your financial position and there may be opportunities to pay some off so that you can simplify your situation and gain clarity about your real budgetary position. Leaving such things until after retirement can add undue stress when you already have enough to cope with, so make the decision to rationalise well before you retire.
Help is at hand
There are so many issues to consider that sometimes it can be helpful to gain an objective insight into making the retirement transition. A financial planner is well placed to not only assist with the investment side of things, but can also help with all of the issues discussed here to help you gain a holistic picture of you retirement lifestyle.
What do you feel is the biggest adjustment you will need to make in the run up to retirement? Share your thoughts below.