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How to improve your financial confidence before you retire
I came across some data last week that should frighten the socks off the Australian government and most superannuation funds that are meant to help people navigate retirement.
This article first appeared in the Sydney Morning Herald, The Age, Brisbane Times and WA Today on Sunday 24th September 2023. Read it here.
I came across some data last week that should make those approaching retirement who aren’t feeling confident, feel very, very normal. It should also frighten the socks off the Australian government and most superannuation funds that are meant to help people navigate this stage.
According to a research study conducted with over-50s for AMP, 75 per cent of people find our retirement system complex – and let’s face it, it is! Nonetheless, only one in four people over 50 years of age have sought financial advice for retirement planning.
Seventy per cent of people don’t know what an account-based pension is (the most common income stream product offered within superannuation post-retirement to give you income monthly, quarterly or annually) and 40 per cent of people don’t know whether they would be eligible for the age pension.
The best thing I think I can do with these insights is help you understand how you can work on your financial confidence if you are approaching or in retirement. And when I say that, I don’t mean “work on your wealth”.
The fact is, you don’t need to be wealthy to have a great retirement. In fact, the people I know who have the most incredible retirements are not necessarily rich at all. But they are financially confident, understanding how much money they can afford to live on, and what they can afford to do with the money they have over the lifetime they have ahead of them.
But if you are approaching retirement and like most Australians in this survey, not feeling all that confident right now – how do you get there?
1. Educate yourself: make financial literacy for retirement your focus. Begin with the basics. Get your hands on books, online courses and newsletters, and attend workshops that provide you with fundamental knowledge about personal finance for the retirement phase of your life. Ask your superannuation fund if they offer any basic retirement literacy education too.
Understand how the systems designed to support retirees work – superannuation in the accumulation and retirement phases, the age pension and seniors concessions. And understand how your home plays a role in your retirement finances too.
Once you know how the systems work, you can better manipulate your goals to leverage them. And don’t be afraid if you don’t understand them now. You are clearly in the majority of Aussies over 50.
2. Get a grip on your age pension eligibility. Sixty-two per cent of Australians over the age of 67 draw on the age pension in one way or another. And 50 per cent in this age group depend on it. So don’t be afraid of taking a good hard look at how the pension works. You might not be aware that full pensioners can access an annual income right now of $42,988.40 for a couple combined and $28,514.20 for single people.
Building financial confidence before retirement is not about the size of your superannuation fund balance but your understanding of your financial situation.
Do some simple calculations of your assets and potential income in retirement to try to understand whether you will be eligible, and whether it will be for a full pension, a part pension, or simply for the Commonwealth Seniors Health Card (CHSC). Make sure you think about it early in the process as this can change many of your other financial strategies.
This article continues on The Sydney Morning Herald. Read the rest here.