Before you go into the details of retirement planning (how much you need to save, where to invest, etc.) it is crucial to understand first why you need to take control of your retirement. While this may seem like a trivial question, research reveals that nearly half of Australians retiring within the next four decades are not financially prepared.[RELATED POST: Australians lack financial literacy, survey says ]
One of the common reasons why people are not prepared for retirement is that they failed to plan ahead and the first step in planning is to know why you need to prepare for retirement. Moreover, some of those who have retirement plan have done it as a DIY task or without consulting a financial adviser. This can limit your perspective and you may miss looking at important factors such as investment opportunities, possible changes in the aged care subsidies, economic risks, and more.
Uncertainty of Age Pension Benefits
Australians are now living longer thanks to medical breakthroughs in the recent decades. But one downside of this is the strain that it places on the pension system as the government needs more money to subsidize pension and aged care needs.
In fact, changes to the asset test for the age pension began this year (January 1, 2017), which has affected around 500,000 age pensioners with around 240,000 receiving reduced pensions, 170,000 receiving a slightly increased pension and 90,000 losing their entitlements. It was a shock for many retirees and many have to cut back on their expenses to make ends meet.
The lesson here is not to completely depend on government subsidy and instead establish multiple sources of income to fund your retirement needs. There is no guarantee that the government will not implement another set of changes in the years to come.
Unexpected Medical Expenses
While the Australian pension system may survive, it is not ideal to plan your retirement to depend on a source that you don’t have control. The government subsidy may not be enough to provide you with enough funds to live a comfortable lifestyle. Like any other social security program, the Australian pension system is designed to provide seniors with a basic safety net, which is a bare minimum.
Without your own savings and investment portfolio, it can be difficult to live the life you want in your retirement years. This situation can even be more alarming during unexpected medical needs.
Old age usually brings more health problems and increased medical expenses. Without a considerable retirement fund, it can be burdensome if your health begins to deteriorate. To avoid any unforeseen medical expenses draining your nest egg, you may need to consider getting insurance as early as you can that covers long-term care and critical illness cover.[ RELATED POST: Why Get a Life Insurance Before Hitting 30? ]
Retirement should not be all about avoiding living on a bare minimum or fighting old age diseases. It should also include how you can still contribute to the well-being of your family. A portion of your retirement planning should include proper estate planning so you can manage your wealth in helping your children or your grandchildren and to keep your assets such as real estate properties.
Without proper retirement planning, you may have to liquidate your assets so you can cover your retirement needs. This will not only eliminate your legacy for your family but you can become a burden on your family when the time comes that you cannot work and you failed to plan ahead.
Failing to Plan is Planning to Fail
The uncertainty of our pension system, unexpected medical needs, and the financial needs of our loved ones are some of the few factors at play. A sustainable nest egg is your main source of power to help you live a comfortable life after years of working hard.
If you like to know more about how you can properly prepare for your retirement and for estate planning, you can call Focused Financial Advice on 02 9003 0611.