Why retirement planning starts at 40 (or younger!)

ARTICLE

18 September 2024

3 min read

Is 40 too young to start thinking about life after work? Absolutely not! Here’s why planning sooner could be your smartest move for a great (and even early) retirement.

They’re questions every Australian will ask at some point: Am I going to be financially okay when I finally stop work? Or with the cost of living so high, will that day ever come?

Ideally, they’re questions you should ask yourself from an early age. Because ultimately, while there’s no shortage of advice and support to guide you, only you can answer what your big post-work dreams look like.

“For some people, it’s loading up a caravan,” says AIA Financial Wellbeing Senior Financial Planner Mark Osborne. “For others, it’s first class flights. And there’s a lot of variation in between.”

Once you have a clear picture of what your retirement looks like, you can start thinking about how much income you'll need to fund it – and that’s where a financial planner like Mark can put the structures in place to achieve that income.

“We can start there, then work together to add in the lifestyle elements, whether it’s a gift to the kids to help them get their first home, or part-time work, or travel plans or a new car,” Mark says.

Where do I start?

Here’s where you want to pour yourself a cool glass of water and ask yourself: “How do I picture life after work?”, “What’s on the bucket list I talk about with my friends?”, What does my partner (if you have one) want to do?”.

People in their 20s and 30s, for example, might need to balance additional superannuation contributions against saving to enter the property market.

“Then in your 30s and 40s, you’re building a family, you might have a mortgage and you’re paying it off, you’re putting your head down at work and moving into more senior roles,” Mark says. “It’s the busiest time of your life, so you want to make sure you’ve got things structured appropriately for the longer term and working as efficiently as possible.”

Are there some guides?

There are, and they’re put together by the Association of Superannuation Funds of Australia (ASFA), the body representing Australia’s superannuation industry.

ASFA’s ‘Retirement Standard’ as at June quarter 2024 (which assumes the retiree/s own their own home) for a single person living modestly is $33,134 a year. For a couple with a comfortable standard of living it’s $73,337 a year.

When it comes to the total amount you’ll need to save before you retire at age 67, ASFA advises that a couple looking to maintain a comfortable retirement lifestyle will need $690,000. A single person living modestly, however, will have most of their needs covered by the Age Pension system, so will only need about $100,000.

That seems clear enough but, while standards are a good starting point, according to Mark, they don’t capture the nuances of real life.

“That’s where financial planners come in,” he explains. “We’ve had those conversations many times, with many people. So we’re seeing things that people probably haven’t considered yet.”

Is there a ‘magic number’?

Good news, you don’t have to have a seven-figure retirement pot.

“One of the things that I think is really daunting for people is reading in the media: ‘Hey, look, you need a million dollars in retirement’,” Mark says. “People hear that, and they get completely overwhelmed. The better thing to do is map out the lifestyle you want in retirement, and then figure out on the income you will need to support that.

At its simplest, the superannuation industry often says that you should aim to maintain an income, or a spending level, at about two-thirds of your pre-retirement salary.

How can I feel in control?

What if you feel your financial situation is working against your retirement plans? For Mark, sitting down and putting your finances in order goes a long way in these circumstances.

To start, making sure you’re happy with your superannuation approach is key.

“Your superannuation should be invested in accordance with your risk tolerance, your investment preferences, your ethical and social preferences,” Mark says. “So you can really tailor it to who you are as a person, what you want to achieve in life, and make sure that that’s working for you. And the sooner you do that, the more time you’ve got for that strategy to work.”

Following that, it’s about knowing your goals and setting up plans to achieve them over time.

“There’s a lot of psychology involved in financial planning – just helping people to make good decisions,” Mark says. “So planning can put the right structures in place and, as markets recover over time, you’re positioned to take advantage of that.”

Mark firmly believes that with the right planning and financial advice, even if you start without a strong base of assets in your 40s or 50s, it’s possible to set and achieve a goal of retiring comfortably, ready to enjoy your post-work dreams.

Disclaimer:
Copyright © 2024 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situations, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.