There’s a reason why retirement is often referred to as “the golden years”. It’s often viewed as the part of your life to just lay back and enjoy the fruits of your working years by living out the best years of your life. 

Retirement can mean different things for people. It can mean an early retirement, travelling all around the world after leaving the workforce, or settling in a quiet suburb far from the bustling cities.

But no matter what your ideal vision of retirement may be, you need to answer important questions to make your dream a reality. Most people don’t realise that a good retirement requires proactive and thorough planning. 

Here are the most important questions you should ask during retirement planning. 

1. What do I want to do in retirement? 

While this sounds like a basic question, it can help you fully determine the direction you need to take when planning for your retirement. It will help you have an estimate of how much money you will need and the long-term strategies you need to implement now to achieve it. 

This will set the “why” behind your retirement goals. Having an understanding of why retirement is important to you starts with asking yourself what activities you look forward to doing the most or what kind of lifestyle you want to live. 

Here are additional questions to help guide you: 

• Where do you want to live?
• Do you want to continue working or to start a business for more income sources? 
• Is travelling part of your plan?
• How do you spend your free time? 

If you are still far from retirement or you have no idea when you think you’ll hang up the gloves, focus on things you currently enjoy doing. Your vision of retirement may be as simple as having more time and opportunity to channel more of your time and resources towards activities or things that you already enjoy doing. 

2. How much money will I need in retirement?

When we talk about retirement, money is one of the most important aspects to take into consideration. 

So, how much retirement savings do you need? The Association of Superannuation Funds of Australia (ASFA) suggests a comfortable retirement income for a home-owning couple is $62,828 per year, while a single person would need around $44,412 per year.  

This income will be a combination of a part-age pension and retirement savings of $640,000 for a couple and $545,000 for a single person.

While these figures can be a great starting point, there are other things to consider when you are estimating how much money you will need to save up.

Another thing to consider is how long you plan on living. While life expectancy isn’t something most people like to think about, your expected longevity will play a crucial role in your retirement planning. The longer your life expectancy, the higher the amount you spend in retirement. 

Your expected annual expenses in retirement is also another factor to consider when adding up the numbers. Some people spend more once retired. They travel or take on more hobbies, while some are saddled with heavy medical bills. Others spend less due to lower transportation costs and they find that they have no need to update their wardrobe as much.

You will also need to factor in the rate of return you will earn on your savings and investments. Inflation, as well as other economic factors, should also be taken into consideration. 

Sounds complicated? To help get you started, create a realistic budget. Firstly, look at the money you spent over the past 12 months. Adjust for items that may not be needed in retirement, such as work clothes, and add new likely expenses (medical bills, travel and vacation funds etc).

Financial advisers often rely on a 4 per cent rule when it comes to estimating how much you can afford to spend yearly once retired. 

The metric, created in the 1990s by financial adviser William Bengen, suggests retirees can withdraw 4 per cent of their total portfolio in the first year of retirement. That dollar amount stays the same each year and rises only with annual inflation.

Just keep in mind that whatever number you come up with is merely a ballpark estimate. Reviewing your current and future budget is a more reliable method to figure out your desired income amount.

Many other factors, such as your planned lifestyle expenses, future inflation rates, anticipated healthcare expenses, and whether or not you will be debt-free, influence the total amount of savings needed to fully fund your retirement.

If you find the process to be overwhelming, you may seek the help of a certified financial planner to help you create a holistic financial plan. 

3. How and when can I access my super?

Your age, work situation and the type of benefits included will dictate how and when you can access and draw down your superannuation fund. 

While there are quite a few special circumstances that allows you to access your super, you can generally access it if you:

• Reached the preservation age (see the Australian Taxation Office’s guidelines) and retired.  
• If you’ve reached preservation age but haven’t met any of the conditions of release, you can access some of your super while you continue to work with a transition to retirement (TTR) income account.
• Reach the age of 65 years old (even if you have not retired).

Once you have confirmed your eligibility to access your superannuation, the most popular method to use in retirement is known as an account-based pension (also called income stream or allocated pension).

An account-based pension is a retirement income stream which you can start using the proceeds from your super balance, once you’ve met a condition of release.

This pension is simply a regular income from your superannuation that is tax-free for those aged 60 and over. If you are under the age of 60, a declaration of the pension on your tax return needs to be presented, and you will receive a 15 per cent rebate on that amount. 

4. What are my other income options during retirement?

For many retirees, government entitlements such as the age pension will be a pillar of their retirement income.

Once you have reached the qualifying age, you are given access to the Age Pension. 

There are two tests for determining the amount of age pension you receive. These are known as the asset test and the income test. According to Services Australia, the test that results in the lowest pension amount payable will be the one that applies. Read our article on how to access the age pension to learn more. 

Even receiving a small age pension payment could give you access to the Pensioner Concession Card (PCC). A concession card helps you access cheaper healthcare, medicines and some discounts. 

It’s worth noting you may be able to continue to earn some employment income without reducing your age pension payment with the  Work Bonus scheme. As all government entitlements, you will need to meet certain eligibility requirements.

But what if you are not eligible for any age pension? If you are fully self-funding your own retirement, you may be qualified for the Commonwealth Seniors Health Card (CSHC) instead. With a CSHC, you may get benefits such as cheaper medicine under the Pharmaceutical Benefits Scheme, bulk-billed doctor visits and refund for medical costs when you reach the Medicare Safety Net.

5. What should I do about property?

When people are young and employed, they tend to live more in urban areas. However, these areas usually have a high cost of living, making it expensive for retirees to live in.

Therefore, some people who are nearing retirement should consider moving to a more affordable location, or selling/downsizing their homes. These options will also free up some cash that you can use during retirement.

If you’re moving to another location, affordability should not be your sole consideration. Here are some factors that should be considered when picking a new place to live: 

• Proximity to family members
• The cost of housing (or potentially renting) 
• Access to healthcare facilities
• Access to entertainment  
• Proximity to major airports and transportation hubs 
• Year-round weather conditions
• Taxes 

It is almost impossible to find an area that fits every need, so the best strategy is to move to an area that meets the bulk of your needs, particularly those related to long-term health and wellbeing. 

If you’re not seeking a change of scenery and you need additional money to boost your retirement savings, one option is a reverse mortgage. If you are considering a reverse mortgage, it’s important to understand the pros and cons. Our article on reverse mortgages may help shed more light on this option. 

Another option to use your home for extra money is the government Pension Loans Scheme. It is a kind of reverse mortgage, paying recipients a fortnightly amount of up to 150 per cent of the age pension rate. You will need to meet certain requirements to be eligible.

You could also consider joining the ranks of the Airbnb hosts and choose to rent out part of your home to make extra money. Here are some things you should know before hosting an Airbnb. 

6. Is my estate plan ready?

In order to make sure that your affairs are in order when you die, it’s sensible to do some estate planning. 

There is a common misconception that you have to be rich in order to have an estate plan. While most of us are familiar with leaving a will when we pass away, there is still a large percentage of Australians who do not have one. It’s no surprise then that drafting an estate plan is even lower on the list of things we prioritise when financial planning. 

So, let’s set the record straight: you don’t need to be wealthy to create an estate plan. Your estate includes everything you own, and it can be any size.  

Estate planning is an important aspect of your financial plan and shouldn’t be a last-minute task. A comprehensive estate plan will ensure that your assets and investments are properly distributed to your family or beneficiaries in the most efficient and hassle-free way possible. 

Read our guide on estate planning to help get you started. 

Conclusion 

Planning for your retirement can be overwhelming. Consider these questions as a starting point to guide you in your planning process.