Planning for Retirement - An Overview
When it comes to funding retirement, there can be an overwhelming focus on superannuation. In fact, based on an analysis of ABS data by the Grattan Institute, superannuation only currently accounts for 15% of the wealth held by households. While it is presently the second most important asset class, after the family home, at the current rate of growth it may possibly overtake the family home as the most important single asset class over the coming decades.
As we are beginning to see, however, there are limits to how much the community can afford superannuation in its current form and there are clear risks to focussing too heavily on super as the "only" wealth vehicle - including the tendency of politicians to "change the rules".
Consequently, and particularly for individuals retiring in the near term, the focus has to be on managing and accruing wealth across all the various asset classes. This very much includes the appropriate management of your family home, one of the most tax effective investments available. While it is not a liquid investment, nor income earning in the absence of renting part of the property or generating funds from a reverse mortgage, it provides very tangible financial security and reduced living costs if fully owned on retirement.
The chart below demonstrates both the importance of property investment across all the age ranges and the apparent failure of policy in Australia to induce individuals to move out of the family home - because of the favourable treatment both in terms of capital gains and the pension assets test - or to derive income from the family home through reverse mortgages. The minor role played by superannuation, particularly post retirement is probably largely a function of the fact that most current retirees had relatively little time to build up substantial superannuation funds.
This section of the website provides an introduction to financial planning for retirement, based on strategies you might adopt at various ages, in your 30s, 40s, 50s and during retirement. This is an extremely complex area which is very dependent on your own personal circumstances, and our focus has been upon providing an introduction to the major issues involved. Any planning should be done in concert with your individual financial planner and you should play an active and informed role. Trusting your planner does not mean that you should abrogate your responsibilities for managing the process.