Written by Jenny Brown – JBS Financial Strategists.
If I told you to imagine your retirement, what would it look like? The time and money to travel the world, the ability to spend more time with family, restoring that old 1960 Shelby GT500 or maybe you just want to stop and smell the roses. Now imagine doing that 5 years or even 10 years earlier. Think it’s a pipe dream? Think again! With some professional assistance, savvy investing, smart spending and a practical attitude, you too could be on your way to retirement at 55!
What timeframe have you got for your retirement? Age 65? 70? Or maybe the other way, 50? While age 65 is considered the standard retirement age, most of us would rather it happen a lot earlier. Retirement doesn’t have to mean ‘stop working’ as some of us just can’t imagine that ever happening, but rather it could mean that point of financial freedom. That point where your debts are repaid and you have the funds available to take a trip whenever the mood takes you, to spoil the grandkids or to buy that original part for your car restoration. So, now that we know what we’re talking about, when do you want to retire?
With the goal to retire early, you now need to put in some hard work and determination to make it happen (unless you have the luck of the Irish and win Tattslotto or you get an inheritance from a very rich long lost relative who has passed away). So what do you need to do to make retirement happen before you lose your hearing and you have to employ the comb-over?
With any retirement goal, there are generally only four steps to follow mixed with some determination, willpower and savvy management of your finances. However, with a goal of early retirement you need to start earlier and do more.
1) Work out what you have now.
This is where you see what you have in assets, and calculate up all you debts to see where you’re at today. As part of this step you should also work out where your money is going. By looking at what you’re spending your cash on (a budget), you can determine where impulse purchases or even unnecessary purchases are being made and change the direction of these funds to saving for your future. You also need to consider if you will be taking time off to look after the children as this can dramatically change your plans.
The first part of the financial planning process is to gather all information on your current situation. As your financial planner, we help you to understand what all this information means and it forms the base from which we make our recommendations.
2) Work out what you want as an income in retirement.
Have you ever thought about how much you’ll need as an income in retirement? Your home loan will be paid off (hopefully) and the kids will have left the nest (very hopefully!) so you don’t think you’ll need that much? The AFSA Retirement Standard (a quarterly report on estimated expenses for retirees) indicates that a couple living a comfortable life in retirement needs around $55,000 per annum. But are you planning for a comfortable retirement? Or are you thinking you’d rather a more than comfortable retirement or even an extravagant retirement traveling the world?
3) Work out how much you’ll need to achieve your retirement income.
Up until now, the steps to take are much the same for everyone planning their retirement but here is where things change. Put simply, if you want to retire early, you need more, earlier. Calculating your required level of funds differs when your retirement is 35 years long rather than if it was only 25 years. To generate an income of $55,000 per annum for a 35 year retirement, you would require about $2,100,000 at the point of retirement. If, however you were only planning a 25 year retirement, then you would only need about $1,700,000 (6.0%p.a. return, 3% CPI).
As part of our recommendations, we determine if your goals are achievable by calculating what you’ll need in retirement to achieve the income you want. We take into account the risk you’re prepared to take (risk profile), market conditions, taxation implications and a number of other variables to give you an idea of what you are aiming for.
4) Work out what you need to do to get there.
It’s easy to say that you’ll need more money earlier to retire early, but you then have to work out how you’ll get there. This is where getting the right advice is important. As part of our process, we review your current situation, look at what you want to achieve then provide recommendations on what you can do to get there.
We will not only help with the traditional ‘spend less, save more’ strategy but also look at other strategies that may reduce the tax you pay, increase your superannuation balance and limit the impact on your cashflow so that your current lifestyle doesn’t necessarily need to be compromised. Preparing for retirement not only means saving funds but also putting in place appropriate insurances to protection what you’ve built. There is no point putting great plans in place if one little hiccup means you have to start again.
What JBS can do for you
Everyone has a different situation, varying influencing factors and a range of life goals which they hope to achieve. Our role as a professional adviser is to explore all of the objectives, influences and desires in our clients’ lives. Then use this information to create a framework of how to help the client and to give them the ‘big picture’ of what needs to be done in order to achieve it.
Our aim is to build a long term relationship with you that helps you to Create wealth for your future, Protect what you’ve built and Enjoy the fruits of your hard work when the time is right. The key to retiring early is to start planning early so call us today to take the first step to achieving your financial goals.
Don’t forget, you can refer a friend. If you know someone that you think might benefit from our assistance, please refer them to our office for a no-obligation, free chat.