It’s April already and Easter will soon be upon us. We hope you have a peaceful and relaxing holiday weekend.
The big economic story in March didn’t need a share market ticker to announce itself, it was visible on every petrol station price board across the country.
The escalating war in the Middle East has seen extreme volatility in global markets. The closure of key shipping routes disrupted millions of barrels of oil, sending shockwaves through energy markets worldwide. Brent crude surged by almost 70% in March to trade at around $115 per barrel by month’s end, its highest level in years.
US share markets bore the brunt, with the S&P 500 down roughly about 8% for the period, while the tech-heavy Nasdaq fell more than 10%.
Closer to home, the ASX 200 fell around 8% because of energy price fears and inflation concerns. The Australian dollar weakened by almost 3% over the month, falling to approximately USD 0.686.
Inflation figures were steadying before the outbreak of war, with annual inflation slowing to 3.7% in February.
The RBA increased the cash rate target by 25 basis points to 4.10% in March based on concerns about inflationary pressure due to the Middle East conflict’s impact on energy prices. Further pressure on household budgets and interest rates looks likely in the months ahead.
Flexing your retirement plans
The concept of retirement is changing, with fewer people working towards a final retirement date and then clocking off for good.
Instead, those who have the flexibility to choose are often transitioning out of the workforce over several years, or even returning after a break.
Whether you simply want to wind back your working hours to explore other interests, or don’t want to cut your ties with work completely, to make it work you need to plan.
Choosing your retirement date
There is no set retirement age in Australia, but most people will not be eligible to receive an Age Pension until they reach age 67.i This means you need enough savings to provide another income source if you retire earlier.
Although most of us have super, you are not permitted to access it until you reach your preservation age, which is currently 60 depending on when you were born.
Withdrawing your super also requires you to meet a condition of release. There are various conditions, but the most common one is reaching age 60 and permanently retiring from the workforce. Once you turn 65, you can access your super whether you are working or not.ii
Keep in mind, tax also affects your super, with different rates applying depending on your age. Most people can access their super tax-free once they reach 60.
Paying for your retirement
Unfortunately, there is no simple answer to how much income you will need in retirement. It depends on your current lifestyle and planned retirement activities, but a good place to start is the ASFA Retirement Standard.
For around 62% of the population aged 65 and over, the main source of retirement income is the Age Pension and government payments.iii
Eligibility for an Age Pension is assessed using your age, residency status and personal income and assets. These determine whether you receive the full fortnightly payment rate, which is currently $1,682.80 a fortnight for a couple.iv
As part of your planning, check for other potential sources of income from investment assets, contract work, or rent from investment or Airbnb properties.
Using your super savings
While you may dream of retiring early, many of today’s retirees can expect to live well into their 80s, so your super may need to provide income for more than 20 years. If you are unsure whether your super is on track, we can help you check your progress and put strategies in place to achieve your retirement goals.
Most super funds provide online calculators to give a rough estimate of your likely retirement balance and how much income it will provide.
ASIC’s MoneySmart Retirement Planner is another resource for working out your retirement income and potential Age Pension payments.
Transition-to-retirement (TTR) pensions
If you would like to ease into retirement, it can be worth investigating a TTR pension. These allow you to cut back working hours while using your super to supplement your income without compromising your lifestyle.
If you are aged under 60 you will pay some tax on pension payments, but they are tax-free once you reach age 60.v
TTR pensions also allow you to continue topping up your super through a salary sacrifice arrangement with your employer. You only pay 15% tax on these contributions, which may be lower than your marginal tax rate.v
Giving super a late boost
If you have income to spare as you move towards retirement, perhaps from an inheritance or downsizing your home, there are now additional opportunities to continue adding to your super.
You can make personal after-tax contributions of up to $120,000 a year until you reach age 75, even if you are not working. You may even be eligible to use a bring-forward arrangement and add up to $360,000 in a single year.
Once you hit 60, if you are planning to sell your current home you can also make a downsizer contribution of up to $300,000 ($600,000 for a couple) into your super account.
Retiree concessions
When you are doing your retirement sums, don’t forget some of the concessions on offer to older Australians. If you are aged 60 and over and working less than 20 hours per week, your state’s Seniors Card can provide discounts on public transport and some goods and services.
You may also be eligible for the Commonwealth Seniors Health Card for cheaper prescriptions and medical appointments, or a Pensioners Concession Card for discounted public transport.
If you would like to discuss your retirement options and how to fund them, give us a call.
i https://www.servicesaustralia.gov.au/who-can-get-age-pension?context=22526
ii https://www.ato.gov.au/Individuals/Super/
iii https://www.aihw.gov.au/reports/australias-welfare/age-pension
iv https://www.servicesaustralia.gov.au/how-much-age-pension-you-can-get?context=22526
v https://moneysmart.gov.au/retirement-income/transition-to-retirement
Enjoy the now and secure your future
Managing your financial situation always involves tension between how you live your life now and preparing for your future – whatever that looks like.
The worry about not getting the balance right and making unnecessary sacrifices now – or not having enough money for the things you want to do in the future is a common and valid concern we hear when we talk to clients. You want to be living your best life now which means not living too frugally or worrying about your future. At the same time, you don’t want the choices you are making now in how you live your life to impact or make impossible the wonderful life you envision for yourself down the track.
Balance whatever your stage of life
We all have financial goals – whether you are saving for your children’s education, working towards that once in a lifetime round the world trip, freeing up finances for a gap year, or setting yourself up for a wonderful retirement. It’s important to balance your ‘now’ with your ‘future’ when it comes to spending, saving, and investing to make sure you can achieve those goals. You don’t want to regret your spending – or on the other hand live a frugal life and look back on opportunities you missed while you were squirrelling it away.
The tension between the ‘now’ and your ‘future’ with respect to your finances can be even more heightened when you have retired. It can be a strange adjustment suddenly not having a wage coming in and living off your savings, super and investments. It’s common, and quite understandable, to worry about not having enough to last the distance, particularly given that a 65-year-old today may live well into their 90’s and could spend up to three decades in retirement.i No one wants to outlive their savings.
However, many retirees live unnecessarily frugal lives as evidenced by a 2020 Retirement Income Review which found that most people die with the bulk of their retirement wealth intact.ii Those that live frugally do so often not from necessity but because they don’t have an understanding of their financial needs, including how these will change over time, and how much they can afford to spend.
How the balance changes over time
That balance is hard to hit. It is different for different people, and your approach to saving and spending will change at various stages of your life.
If you are paying off a difficult to maintain level of debt or in the final stages of scraping together a deposit for a home, making sacrifices now in the way you live life your life might feel OK. Equally if you have spent much of your life building wealth, letting loose the reins a little and going on that cruise might be something you are extremely comfortable with.
Certainty now and confidence in the future
Whatever your stage of life, achieving the right balance comes from having an in-depth understanding of your financial situation now, and establishing and maintaining a personalised plan that takes into account all aspects of your financials – your earning capacity, level of debt, assets and very importantly, the life you want to live today and your goals for the future.
The importance of receiving support with financial planning is reinforced in a recent report which indicated advised Australians are significantly more likely to say they feel confident in achieving their financial goals (71 per cent) compared with those who are not receiving support (55 per cent).iii
The same proportion said that they were living well now, stating their finances allow them to “do the things I want and enjoy in life.” And those receiving advice are also balancing the “now” with their future needs. Those accessing financial advice also indicated they were more likely to be financially prepared for retirement and have a higher savings balance.
This confidence that comes from receiving personalised advice also means being more prepared when people leave the workforce (and a wage) behind. Advised Australians are significantly more likely to feel very or reasonably prepared for retirement (76 per cent), than those without advice (45 per cent).iv
The key to achieving a balance between living your best life now and being financially secure in the future is knowledge. If we know that tomorrow is shaping up well for us, we may worry a little less today, feel a little less guilty when we spend today and be less likely to have regrets about spending – or about missing out – further down the track.
i https://www.aihw.gov.au/reports/life-expectancy-deaths/deaths-in-australia/contents/life-expectancy
ii https://treasury.gov.au/sites/default/files/2021-02/p2020-100554-ud00b_key_obs.pdf
iii https://www.netwealth.com.au/web/insights/the-advisable-australian/understanding-australian-advice-clients-better/#download
iv https://www.netwealth.com.au/web/insights/the-advisable-australian/understanding-australian-advice-clients-better
Evidence-based ways to hold back the hands of time
You can’t stop the clock, so the saying goes, but humanity has spent a long time trying to slow down or even reverse the effects of aging.
Even today it can be hard to distinguish those measures that work from those that may not work and avoid those that may be downright dangerous! Fortunately, science- based public health research has some of the answers, so for some medically backed ways to stay healthy as you age- read on.
But first let’s look at mankind’s long history of trying to stop the clock, or at least slow it down a little. Anti-aging practices included the Egyptian queen Cleopatra bathing in donkey’s milk, 16th century French courtesans drinking suspended particles of gold, and the Spanish explorer Juan Ponce de Leon’s infamous quest for the legendary fountain of youth. Unfortunately, many of these measures weren’t successful and may have actually shortened rather than lengthened the live spans of those trying them.
Today the quest continues…
The quest for the fountain of youth has not ceased – it’s just taken other forms in today’s society. The anti-ageing market is ever expanding and expected to be more than $119.6 billion globally.i
American tech centimillionaire Bryan Johnson is a significant contributor to that figure, reportedly spending $2 million a year on a complex regime designed to reduce his biological age from 45 to 18, which includes injecting himself with his 17-year-old son’s plasma.
The truth is, aging is natural. Our bodies aren’t meant to stop aging entirely. But the good news is that there are some tried and true, medically proven ways to stave off many of the problems associated with aging and, in some cases, slow down the aging process. While none of these are groundbreaking discoveries, it’s worth keeping in mind that you don’t have to spend all your money or waking hours to stay healthy as you age.
Tips for living well and living long:
Move it!
That treadmill at the gym may not be a time machine but it can play a part in slowing down the clock. In fact, research showed that those who ran a minimum of 30-40 minutes, five days a week, had an almost nine-year “biological aging advantage” over those who lived a more sedentary lifestyle.”ii Doctors call physical exercise a “polypill” because it can prevent and treat many of the chronic diseases associated with aging and it’s never too late to start getting the benefits from regular exercise. Even a daily walk can do wonders!
Stress less
It’s no secret that being in a constant state of stress is wearying and can make you feel older than your biological age, but recently scientists confirmed that exposure to stress can cause inflammation and damage to DNA in cells, which in turn can accelerate aging.iii The good news is this can be reversed using stress busting techniques such as mindfulness meditation, breathing exercises and progressive muscle relaxation which can lead to improvements in various biological markers associated with aging.
Nourish yourself
While there is plenty of hype around the plethora of “superfoods” that are touted to possess anti-aging qualities there is no one food that will significantly impact the aging process and turn back the clock. However, the food and drink we put in our bodies day after day does make a difference to our health as we age. Research from the worlds “Blue Zones” – areas where people tend to reach the age of 100 – demonstrate the benefits of a relatively plant-focused diet consisting largely of vegetables, fruits, grains, and legumes.iv
Maintain a positive mindset and embrace aging
Finally, it’s also worth considering that as we can’t beat the clock, we might as well accept, if not embrace, the gifts that come with age (wisdom and a longer-term perspective come to mind!).
And moving through life with a positive mindset about the aging process might also give you more days to enjoy. A study recently confirmed that those with a positive view of growing older lived seven years longer than those who complained about it.v
All in all, life is to be lived to the fullest and it’s precious because it’s finite. Do what makes you feel healthy and gives you joy now and that will also help you to enjoy life in the future.
i https://www.globenewswire.com/en/news-release/2022/03/29/2412093/0/en/Anti-aging-Market-Size-to-Worth-Around-US-119-6-Bn-by-2030.html
ii https://news.byu.edu/news/high-levels-exercise-linked-nine-years-less-aging-cellular-level
iii https://www.healthline.com/health-news/stress-can-increase-your-biological-age#How-stress-ages-the-body
iv https://www.everydayhealth.com/diet-nutrition/the-blue-zone-diet-a-complete-scientific-guide/
v https://pubmed.ncbi.nlm.nih.gov/12150226/