Retirement… it's a scary concept if you haven't already crossed the threshold into your golden years. The first frightening aspect of retirement is that it also represents 'getting older'. As this is unfortunately inevitable for us all, I'm not sure I can offer too much assistance in allaying that particular fear.
But from a financial perspective – the other great fear presiding over the concept of retirement for many – this writer may indeed be able to offer some tips.
1. Use super
Pardon the pun, but superannuation really is a super vehicle for planning for retirement. There are a litany of tax breaks available to those who utilise their super fund to plan for their retirement. And our compulsory super contributions (currently set at 9.5% of the average worker's salary) all come from pre-tax dollars as well (although they are still taxed at a lower rate).
So the benefits of finding a good, low fee super fund and making sure that's your only fund is a great way to build wealth. And the best thing? Super saves us from ourselves by not letting us raid the honeypot until the day we check out of work.
2. Get your asset allocation right
I should preface this point by saying that if you're not already investing, get on the train! But if you are, I think making sure your asset allocation is spot on for your needs is also very important. A lot of people will do things like 'sell shares and go all cash' because they think a market crash is imminent. But unless you're less than 5 or 10 years away from retirement, sticking mostly with shares and growth assets is most likely the best thing to do.
Even if the market does crash (which history tells us is eventually inevitable), you've got plenty of time for your growth assets to recover. So I would be very careful with buying bonds or staying substantially in cash if retirement isn't yet on your horizon.
3. Have a plan and stick to it
If you set out the rules of how you will manage money in retirement, you will find yourself less prone to acting rashly by, say, selling stocks at inopportune times. A good rule of thumb is to keep a few years of living expenses in cash and the rest of your money invested in assets that will continue to build wealth over the long term. That way, you won't get spooked by stock market crashes or volatility in your own investing portfolio.
If you nut this out when or before you retire, it will lead to more logical thinking, which is always good news for your wealth!
