Weighing The Costs Of Retirement
Courtesy of Sun Herald- Terry Smyth, 25 August 2013
Life after work has its challenges, so plan before you take the leap.
It’s a confronting sum: $1 million – the amount of superannuation that, according to financial planners, a couple will need to live comfortably in retirement.
“It’s scary when you look at the average super fund balance, which is a lot less than that, even for people at retirement age,” says Tony Mitchell, a business specialist and lawyer with Stacks law firm.
Mitchell, who advises people on how to set up their financial affairs to protect themselves legally and financially in retirement, knows from experience that people generally underestimate what it will cost to live in retirement.
“For people in their 20s entering the workforce now, with the government’s stated policy of increasing compulsory super to 12 per cent by 2019, $1 million may not be out of reach,” he says. “But there are many millions of people in Australia who are in their 30s and 40s and don’t have a great deal of super, and 12 per cent of their wages is not going to accumulate to $1 million by the time they’re in their mid-50s or early 60s.”
So don’t leap into retirement. “Make sure you’ve obtained some very good, very structured financial planning advice and have a very good idea about how your accumulated savings are going to last. It’s no use having a plan to have your savings last until you turn 80 if, in fact, you live well beyond that.”
People considering retirement are usually contemplating life after work, not life after death. “It’s called ‘going SKI-ing’,” Mitchell says. “That stands for Spending the Kids’ Inheritance.” However, too few consider that you can’t live forever and you can’t take it with you.
Take wills, for example. “An important issue with wills these days is the question of exactly what a will covers,” Mitchell says. “A will only covers things that you own. Assets people typically think they own, but are held by super funds or by family trusts or by companies, aren’t owned by you and therefore aren’t covered by your will.
“When a person dies, their company or their trust continues to live, and for that reason a very important issue in estate planning for people to consider is the issue of who gets to control their trusts and their companies after they die. People who control the companies and trusts will control the assets those companies and trusts own.
“Wills are becoming increasingly irrelevant for people who hold the majority of their assets in non-estate entities such as super funds, particularly self-managed super funds, family trusts and family companies.”
His advice: “Have in place an enduring power of attorney and an appointment of enduring guardianship, so that if you suffer some incapacity through some mentally debilitating disease there’ll be someone who can administrate your affairs efficiently without having to go to courts or tribunals to get orders appointing government people or people you don’t really know to handle your affairs.
“Anyone you appoint to those roles should be somebody you trust implicitly.” There is a widespread lack of awareness of these issues.
“People tend to put these things off, thinking that old age is five or six years older than they are at any particular time.
“Whereas anybody, even people in middle age or in their 30s or 40s, should be looking at having powers of attorney and appointments of enduring guardianship in place. Accidents can strike anybody down at any time – it’s not limited to people in their 70s, 80s or 90s.
“So it’s an important issue for people of all ages, but particularly for people approaching retirement.”
THINKING OF RETIRING?
It’s never too soon to plan for retirement.
Know how long your savings will last.
Don’t rely on good luck or guesswork. Seek expert advice.
Make a will, but be aware of what it covers and what it does not.
Appoint someone you trust to handle your affairs if you’re unable to do so.
With all that taken care of, go SKI-ing.