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Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.

How to Plan your Finances for Longer Lives

Retired citizens having fun

Financial planners who specialise in retirement planning must now consider how to plan your finances for longer lives, and ensure that your retirement income is set up to provide for you in the long-term. 

In the last half a century, the average life expectancy of both women and men in Australia has continued to rise and rise – from around 74 years old to 84 years old. The number of people hitting the 100-year-old mark is also on the rise, and this poses a serious problem for many people. Most notably, how to plan your finances and make sure they last for the ever-increasing life expectancy. 

The Cost of Ageing

Once you stop working and stop receiving regular pay, you’ll start to realise the need for a retirement fund.

But even if you have a fund with seven digits, you might be surprised by just how hard it is to get by for another 20, 30 or even 40 years. Major expenses you’ll need to pay for include:

  • Medical expenses
  • Unforeseen disasters
  • Maintenance of your home
  • Enjoying retirement! Such as holidays away or spending time with loved ones

Simply put, a million dollars in the bank is still a relatively small amount to last you comfortably through retirement and it is important to know what you need, as it may be time to readjust your thinking.

We gain our figures to assess how much you will need from retirement from the ASFA retirement standard where they break down expected annual expenditures that are updated year on year. As of the 2022 March quarter, if you are aged around 65, you will need an average budget of $29,632 as an individual to live modestly, or $46,494 to live comfortably. For a couple, the figures are $42,621 or $65,445 respectively.

Top Tips for Planning your Finances for Longer Lives

Understanding the importance of greater financial independence, it’s time to get to work putting in place plans to help ensure you are ready. Regardless of whether you’re 20 or 60, there is plenty for you to do. So here are six key steps to take.

1 – Rethink your Investments

In the past, it may well have been enough to rely on a social security package with a handful of investments, to fund you throughout retirement. Well, that’s no longer the case. Instead, you need to thoroughly review your investment strategy and find more ways to diversify your portfolio for long-term gains.

There is no simple way of calculating investment needs in retirement, so be wary. To illustrate this, one rule of thumb thrown around in the past was to subtract your age from 100, and then the final number would be the proportion of your investments that are in growth assets like shares and property.

While this may have been a simple way of looking at things in the past, it is fraught with issues. Particularly due to the fact we are living longer. The most important aspect of retirement planning investment advice is balancing the short term need for liquidity with the longer term need of growth on your investments, as both are essential to the longevity of your assets over time.

2 – Develop a Spending Plan

As much as earning money is important for your retirement, it might also be necessary to look at ways to cut spending.

And this isn’t only referring to reviewing what you spend now, it means finding ways to reduce your cost of living once you retire. Yes, you can find ways to cut back on things like holidays and groceries, but how about the biggest money-saver of all?

checking a receipt

That’s right, you might want to consider relocating geographically. If you could see yourself living even just a few hours outside your current area, it could cost you half the price. For example, it costs upwards of $1 million to buy a home in many parts of Melbourne, versus Hobart where the median price is $840,000. Or if you were to head north to Brisbane, the median is $738,000.

Coupled with this, there are government incentives available now that encourage you to downsize and give you the opportunity to top up your retirement funds in super, which is the most tax-effective and convenient way to manage your retirement income needs.

Our approach to budgeting is to first define what you need and then what you want, as this helps you prioritise your spending and also allows you to review where you have options to reduce the cost of a particular expense, without necessarily reducing what you get from that spend. An easy example of this is if you can get an electricity provider to give the same for less.

3 – Consider Working Longer

Though it’s not exactly ideal, you might want to consider pushing your retirement age back a bit.

Even a year or two longer can have a dramatic impact on the amount of funds you have ready to use once you do retire. Not only will you be able to earn and save more, but you’ll also be able to benefit more from your pension scheme. Especially if you have any incentivised plans, such as ones where your employer adds in money alongside yourself.

In fact, if you choose to retire at age 66, as opposed to 62, you could see your overall income in retirement rise by around one third in value. This is because every year extra you work has the double benefit, meaning you are accumulating more, while equally not relying on your funds for income need.

4 – Think Carefully About your Health

One of the worst things that can happen to you during your retirement is that you develop a very serious health condition that immediately drains away your funds.

Especially if you do not have suitable health and life insurance that cover such things, as an unfortunate reality of getting older is that you are increasingly susceptible to significant health issues and accidents. Age-related illnesses such as Dementia or Alzheimer’s are so prevalent now and if you are only covered for basic care, it will really limit your family’s choices.

So be clear on what your health or life insurance policy covers you for and that it adequately reflects the care you wish to have and the position you want to leave your loved ones in. Importantly though, insurance is only part of the remedy. Taking proactive steps towards maintaining your health should lead to lower health-related costs over time and will help you enjoy an active and enjoyable retirement.

5 – Seek Professional Advice

Financial planning is a complex topic, and no one expects you to know exactly what to do from the outset. Instead, it is most wise to seek professional advice and assistance from a qualified financial planner. They will be better versed in all investment opportunities available to you and can help you to craft an effective long-term plan.

At first, you may be put off by the fact that you have to shell out even more money in order to gain this advice. But rest assured, it’s worth it. The knowledge a reputable Financial Planner can give you will be far greater in eventual monetary value than what it costs for their services and don’t be afraid to ask them to show you how. They can also provide key assistance in ensuring your finances don’t get abused as you get older.

6 – Constantly Review and Revisit your Plan

Lastly, and most importantly, always come back to your retirement plan.

Just because something makes sense and will work when you’re 40, it doesn’t mean that plan will actually hold up in the way you want 25 years later. Any number of things could have happened in that time that could have negatively impacted your available funds.

Perhaps investments don’t grow quite as you’d like, maybe you lose your job and spend a year unemployed, or perhaps there is another recession and house prices fall in value.

Reviewing and revisiting plans

Regardless of whatever happens, always revisit your plan, ideally every six months at a minimum. This will also open you up to thinking of new and creative ways to help make sure you’re fully prepared. This is why having a financial planner reassess if your plan is working in your best interest every year is important. Also, as you reach and are in retirement, your plan should be evaluated to be sure it is still fit for purpose.

By following these five crucial steps, you should find yourself in a much healthier financial situation by the time retirement comes around.

And rightfully so! After years of hard work, you will need that time to truly relax, enjoy life and do all the things you’ve always wanted. So craft your plan and get started today!

Financial Goals

Important Note
Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else

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Get started with a free strategy consultation and receive a copy of the Good Fortune Guide – written by James McFall, Managing Director Yield FP and 2020 National Finalist Certified Financial Planner of the Year to help educate you on your Financial Plan.