Virtually anyone can self-fund a happy, comfortable retirement regardless of how much they have. The trick is ensuring your financial foundations are sound and you have a comprehensive plan that covers not just your monetary assets, but everything else that is reliant on them too.
Retirement is a time for family, leisure, travel and pursuing personal passions.
Self-funding your retirement, where you’re financially independent and in control, is the ultimate goal for most to achieve this dream life – but getting there requires careful planning and calculated action.
Remember that quality of life is about more than just how many dollars and cents you have. Omitting any of the below from your retirement plan is a dangerous gamble with your golden years.
Finances
Self-funding retirement involves taking a holistic view of your finances to maximise your income and minimise the outgoings.
Consider the following and how they may (or may not) work for you:
- Expenses: your everyday living costs will change once you’re no longer working full time.
- Superannuation: maximising returns and only withdrawing what you really need.
- Part-pension: make super last longer by offsetting your income, if eligible.
- Investment returns: share dividends, rental income, asset sales.
- Part-time employment: ease into retirement gradually and maximise paid earnings.
- Self-employment: start that side hustle or passion project to generate income.
- Tax: minimise bills and claim your full deductions and entitlements.
Housing
Where you live has a huge bearing on your quality of life in retirement.
For instance, home ownership offers far greater stability, both financial and logistical, while renting eats into your retirement income.
Downsizing from the family home may unlock substantial equity, reduce maintenance costs and let you boost your super balance.
A tree or sea change may seem nice at first, but you could experience restricted access to healthcare, services, entertainment and family.
Cohabiting with adult children offers a means for both families to cut housing costs but comes with its own risks.
Consider your options carefully and don’t act on impulse.
Contingencies
What if you or your partner suffer from ill health? You lose money in a scam? Your relationship breaks down? Your superannuation balance plummets in a market crash? Fire, storm or flood destroys your home? You, or your partner, die prematurely?
They aren’t nice to think about, but sticking your head in the sand and hoping for the best isn’t wise.
By all means hope for the best, but have contingencies and protections in place that limit the damage should the worst happen, including:
- Insurances: up-to-date policies, adequate coverage, right-sized costs
- Diversified investments: spread your risk
- Estate planning: put your wishes in writing and keep them current as circumstances change
- Emergency fund: accessible cash in a hurry
Health
Healthcare needs multiply as we get older, and healthcare cards don’t cover everything.
As a self-funded retiree, your government assistance and discounts may be limited. Or you may need to pay as a private patient to avoid lengthy waits in the public system.
Plus, private health cover may be impossible to get post-retirement.
Health-related expenses may include:
- out-of-pocket costs for doctors, medications, dental and eyewear.
- renovations to improve access (ramps, widened doorways, bathroom handles etc.)
- preventative treatments (dietary supplements, physiotherapies)
- assisted care
- a more accessible vehicle.
As such, it is useful to budget in additional money for your healthcare needs.
Relationships
Retirement can change relationship dynamics, especially for couples where one partner retires before the other. If left unchecked, the relationship could sour irretrievably – and divorce doesn’t come cheap.
Then are the potential impacts on your ability to self-fund your retirement if, for example, you support adult children into the housing market. Unmet repayments or bank foreclosure on a loan guarantee could leave you destitute. Or you could inadvertently leave yourself without enough money to live comfortably.
Blended families and second marriages/de facto partnerships can also complicate matters. A notable example is where one partner dies and leaves their home to their children, potentially rendering their partner homeless.
Good communication and written documentation go a long way to keeping everyone happy.
Good advice
Self-funding your retirement shouldn’t mean self-designing your retirement plan.
Just like you seek reputable doctors for your health and lawyers for legal matters, professional tax and financial advice will help you avoid common mistakes and embrace relevant opportunities to save and make money.
You’ve worked and saved your whole life to this point – don’t squander that effort and risk your retirement now by relying on gossip and unqualified self-proclaimed experts!
Have you taken steps to self-fund your retirement? What strategies have worked for you? Let us know in the comments section below.
Also read: How to develop your best transition to retirement plan
Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1 per cent of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
