When is the best time to start planning for retirement?

Hardly a day goes by without either Mark or me receiving a call from a financial adviser who has a client on the threshold of retirement.

Often the inquiry we receive goes something like this – “I am working with a client that has come to see me about their retirement. They are planning to retire at the end of the month….”

Now, this is not the fault of the adviser and often people don’t really think about the financial aspects of their retirement until they give notice of their intention to leave work, and they are then asked “what do you want to do with your super?” 

Planning for retirement is a bit like planting a tree; the best time to plant a tree (or start planning for retirement) was 20 years ago! The second-best time to start planting or planning is now.

When we think about retirement, from a financial perspective, we are often planning for a very long time. With increasing life expectancy, the average Australian can expect to spend 20 to 30 years in retirement. In fact, today people are looking to spend almost as much time in retirement as they spent working. That is a very daunting thought and requires a lot of very serious planning.

All too often we hear stories of people who are about to or have just retired and they visit a financial planner – often for the first time – to get their retirement sorted. After all, super, the age pension, is very confusing unless you have been closely involved with it for a long time.

Often when planners meet with a prospective client to discuss retirement, it becomes apparent that the retiree has insufficient savings, and particularly super, to support the type of lifestyle they have dreamed of. Things are not going to end well as retirement dreams are shattered. Unfortunately, we see this happening all too often.

I don’t think even I started giving retirement a slightest thought until I turned 50. Back then, a person could retire and access their super at age 55. For some reason, turning 50 seemed to be a “wake up call”. Retirement was within reach – age wise but, in my case, certainly not financially. I still had a mortgage and kids at school!

So, on reflection, what are some of the things I have learnt about planning for retirement, and would tell a “younger self”?

1. Don’t think you are too young to start planning for retirement. Time goes by very quickly and we find ourselves sitting on the threshold of retirement asking, “where did the years go?”
2. Aim to save 15% of income in a retirement savings account, from as early as possible. Employers are currently required to contribute 9.5% of a person’s salary to super. This is intended to increase to 12% over the coming years; however, voluntarily contributing extra salary to super can mean the difference between a comfortable, and a very modest retirement. It can also be tax effective.
3. Eliminate debt as soon as possible. It is all too easy to get caught up in the trappings of everyday life and consumerism by wanting all the latest gadgets and toys. But the reality is, we often don’t need them and all we are doing is adding to our debt. Make being debt-free the new status symbol – and not having the newest car on the street. I just read at the weekend; a $50 watch tells the same time as a $500 watch!

If we are to have the type of retirement we have always dreamed of, start planning as early as possible. Find a good financial planner who will work with you to help you set goals, develop smart savings strategies and invest wisely for a profitable future.