A five-year plan to revitalise your super

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Putting something away ... it’s important to be realistic about your income requirements. Tanya Lake

The market gyrations caused by global debt woes have rocked the retirement plans of older workers, many of whom are still to recover all the losses suffered during the global financial crisis.

A $100,000 investment in a balanced superannuation fund made in 2001 was worth $153,224 on average in mid-2011 – or 9.3 per cent less than in October 2007 when the sharemarket peaked, according to research company SuperRatings.

The slump forced people to either delay retirement or cut back on spending to replenish their capital before they were too old to do so.

“Traditionally [retirement age] was 65 but that’s well and truly gone by the wayside,” says Michael O’Neill, chief executive of National Seniors Australia, a lobby group.

“People are now working beyond that – not necessarily full time but transitioning in some way.”

Planning the only answer

The way to keep retirement plans on track, or to combat more nasty surprises, is to plan well. After all, most people don’t retire on a whim but have a date in their heads several years in advance.

Sensible planning to help manage the risk of running out of money in old age could start five years in advance of actual retirement, so big decisions can be considered, contingency plans crafted and critical steps implemented well in advance.

Chris Balalovski, senior manager of strategic advice for Perpetual Private Clients, says a thought-out plan can deliver incremental savings in tax or income that will boost retirement coffers – as well as boost resilience to unexpected market fluctuations.

We have created a five-year master plan for people planning retirement, to give them the best shot possible at a good life.

But there is no reason it can’t be condensed into less time for people who suffered losses during the global financial crisis but still want to quit work as early as possible.

No time for mistakes

It’s important to get all the decisions right, because, as the population lives longer, there is far greater chance of retirees running out of capital before they die.

If you retired today aged 60 with $1 million and withdrew $50,000 a year, your money would run out by the time you reached 80 (based on a 6 per cent return and 3 per cent inflation). If you had only $500,000, your money would run out by the time you reached 70, according to Craig Day, senior technical services manager at fund manager Colonial First State.

If the returns are lower than his estimations, retirement savings won’t even last that long.

Year one

The best way to start the retirement planning process is to run an audit of household finances. Take into account all assets, including the family home and remaining debt.

Evaluate current household income versus expenses to see if cash can be redirected to your retirement savings.

Identify key issues:

■ If there are two adults, is only one of you planning to retire? If so, you can count on employment income for a bit longer.

■ If you are late parents, factor in continuing education costs for your children.

■ Part of deciding how much you’ll need in retirement is what you’ll be doing. Playing golf or travelling, for example, is likely to need more cash than joining a book group or swimming.

■ Take a realistic look at the state of your health, as well as age. For example, will you need to keep aside a sum or use the proceeds of the sale of a home for aged-care facilities?

A useful guide to the amount sufficient for the desired annual income comes from online calculators (but remember that they provide estimates only, based on average historic returns and other assumptions).

AustralianSuper’s retirement income calculator, for example, suggests that a 59-year-old with $1.2 million in super and a salary of $100,000 who is planning to retire in three years can expect annual income of around $55,000 until the age of 101 (based on 4 per cent inflation and a return after fees and tax of 5.5 per cent). However, if the same person had only $600,000 it would last only to the age of 79.

Before starting the calculations, consolidate your super – if you have a number of super accounts gathered through the years, transfer all capital into a single fund.

“It’s easier to generate an income stream if it’s all in the one place,” says Philip La Greca, technical services director at DIY fund specialist Multiport.

For what to do in year 2 please click here

For what to do in year 3 please click here

For what to do in year 4 please click here

For what to do in year 5 please click here