According to research, the average person will outlive their retirement funds by nearly a decade. To prevent this, you need to address longevity risk, which is a term used to describe living longer than your money lasts.

This involves navigating factors like market fluctuations, rising inflation, healthcare costs, increased life expectancy, and complex tax rules. Read on as we explore practical retirement planning steps to help you avoid outliving your retirement funds.

Understanding retirement income and expenses

To determine how long your retirement savings will last, first understand your expected income and expenses throughout your life. By gaining clarity on these elements, you can identify potential shortfalls and address them head on.

Potential income streams in retirement

Common sources of income streams in retirement to factor into your projections include:

• Superannuation savings: For most Australians, your super fund will account for the bulk of your retirement money. Begin with your most recent balance, then predict future contributions and growth to better understand your upcoming income.

• Pension income streams: Converting super into regular pension payments can create tax-effective income for funding living costs.

• Investment portfolio distributions: These can generate dividends and distributions that contribute to your retirement funds.

• Income-producing assets: Assets like rental properties or commercial buildings can provide ongoing income streams in retirement.

• Interest on savings accounts: Interest earned on cash savings may provide liquidity.

• Salary: A study by Allianz found that 77% of people nearing retirement are open to working after they retire. Working part-time or consulting in your field after retiring can help add extra money to your retirement funds.

Potential unforeseen sources of retirement income also include inheriting wealth or selling assets. However, relying on windfalls when saving to retire reduces financial resilience and could put you at risk.

Expected expenses over your lifespan

Some major categories to account for as you enter your golden years are:

• Housing costs: This includes utilities, rates, regular maintenance, and any essential upgrades needed as you age.

• Healthcare: Even if you have insurance, healthcare costs in retirement can bite. Budget for medical, dental, hearing, mobility, and care support expenses.

• Insurances: From home, car, and healthcare insurances to life insurance for legacy planning, premiums impact budgets.

• Transport: Private or public transport plus maintenance and running costs of vehicles need inclusion.

• General living costs: Food, clothing, entertainment, and regular leisure activities are key areas of spend.

• Travel and holidays: Hoping to enjoy an active retirement? Don’t overlook expenses relating to trips and activities.

Other aspects to consider

• Tax requirements: You may need to pay tax on earnings from different retirement income streams. Knowing potential tax liabilities can improve your projections.

• Major one-off or irregular costs: You could face home renovations, vehicle replacement, or estate planning services. Including these can prevent underfunding.

Tools to estimate income and expenses

Fortunately, several tools and resources can help you estimate how much you'll need to strengthen your retirement funds:

• Superannuation calculators: Superannuation calculators are designed to project potential balances at retirement and are typically available through online member portals of most funds.

• Retirement calculators: Retirement calculators can estimate your expenses based on factors such as homeownership, health, and family situation. This information can assist you in creating a financial plan for retirement.

• Budgeting apps and software: These tools can show you how much you spend in various categories. They can also estimate future expenses by analysing your past spending habits.

• Financial advisors: A financial advisor can analyse current investments and strategies, aligning projected returns with retirement timelines.

• Accountants: They can assist with financial modelling of income sources and investment strategies to maximise after-tax retirement income.

By utilising these tools, you can enhance the accuracy of your income and expense projections beyond rough estimates. Seeking professional retirement financial advice also offers crucial support in managing your retirement funds effectively, safeguarding against potential shortfalls during times of vulnerability.

Crafting a sustainable cash flow plan for retirement

Next, determine how to distribute your retirement funds over your lifetime. The goal is to carefully balance the amount and frequency of withdrawals from invested assets. Achieving this balance ensures you can cover annual living expenses without depleting savings prematurely. The ASFA Retirement Standard can serve as a helpful guide in terms of expenditure in retirement.

Key considerations include:

• Life expectancy projections: Realistic estimates based on family history and health indicators help assess if your savings will suffice.

• Timeframe horizon: Extending projections by 5-10 years provides a buffer against longevity risks, even in optimistic scenarios.

• Risk tolerance: Your comfort with investment risk influences portfolio construction.

• Return expectations: Projected returns for each asset class should align with your risk appetite and consider inflation impacts.

• Tax implications: Understand how different investment types affect tax liabilities to preserve savings effectively.

• Asset allocation: Balancing growth assets (like shares) with defensive assets (like cash and bonds) balances risk and return.

• Inflation adjustments: Plan for the impact of inflation, which gradually erodes purchasing power.

• Sustainable withdrawal rates: Historically, withdrawing between 4-5% annually helps minimise the risk of exhausting retirement savings prematurely.

• Review frequency: Regularly review your portfolio and strategy to account for market fluctuations and changes to living costs.

Securing your retirement funds for life: How financial advisors can help

A financial advisor can help give you the peace of mind you might lack when retirement planning by yourself. At Findex, we specialise in integrated wealth management, financial planning, and accounting services tailored for pre-retirees and retirees.

Our approach focuses on creating sustainable income streams, with the aim of preserving capital, optimising tax efficiency, and balancing legacy goals with lifestyle aspirations. Our services include:

• Superannuation health checks: Guidance on contribution strategies, insurance, fund consolidation, fee analysis, and benefit transfers. Get yours here.

• Portfolio assessment and rebalancing: Diversifying investments across asset classes based on goals, timeframes, and risk tolerance, with ongoing reviews and recommendations.

• Retirement income stream comparisons: Evaluating pensions, annuities, and account-based income options across longevity, flexibility, returns, and tax implications.

• Insurance reviews: Reviewing personal insurance policies to ensure they meet your evolving needs.

• Estate planning evaluation: Estate planning in retirement is all about detail. This includes streamlining wills, asset ownership, Centrelink impacts, and aligning them with your retirement and legacy goals.

We give personalised advice based on your financial situation; not just general assumptions based on your age. As both accountants and advisors, we offer an integrated approach to wealth creation and protection.

Protect your financial future

Retirement is about enjoying the rewards of your hard work with family, travel, and personal projects. Plan carefully to make sure your money lasts and your lifestyle stays secure.

Contact our wealth management team to discuss how we can help you secure your retirement funds for life.

Take the first step towards a worry-free retirement today.

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