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Retirement Planning for Beginners In 6 Simple Steps
Retirement Planning for Beginners
Written by Chris Strano |
Updated on October 17, 2024

Fact checked by our licensed advisers

Retirement planning can feel overwhelming, especially when you’re just starting out.

But don’t worry—this article will guide you through six straightforward steps to build a solid retirement plan for beginners.

By the end, you’ll have a clear understanding of the process and know exactly what to include in your plan.

Retirement Planning for Beginners in 6 Steps

To make retirement planning easier, we’ll break it down into six simple steps that are easy for beginners to follow. Starting with:

1. Know When You Can Access Your Super & Age Pension

Your superannuation balance and the Centrelink Age Pension will likely play key roles in the funding of your retirement.

Therefore, knowing when you can access your super and the age you first become eligible for Age Pension payments is crucial in planning your retirement date .

So what are the ages you can access your super and Age Pension?

Here are the relevant ages for each:

  • Superannuation Retirement Age – Age 60 is the first age that you become eligible to access your superannuation, either as an income stream, as a lump sum withdrawal, or both.
  • Age Pension Age – Age 67 is the first age you become eligible to apply for the Age Pension. Your entitlements (if any) will be means-tested, based on your level of income and assets.

Attaining your superannuation retirement age will give you access to the funds required to make affordability of retirement more achievable.

Additionally, as you approach Age Pension age, retirement becomes even more affordable, because your retirement income can be supplemented by Age Pension payments, reducing the amount of your superannuation and investments needed to cover retirement expenses.

Now that you understand both of these significant ages in relation to retirement planning, you can move on to arguably the most important step in the retirement planning process – defining your retirement goals.

2. Define Retirement Goals

An integral part of every retirement plan, even for beginners, is clearly defining how you would like retirement to look like. Because without knowing where you’re going, how can you put in place a plan to get there?

What goals do you have in retirement?

To begin with, you need to answer three questions.

What age do you plan on retiring?

The age you choose to retire will influence the quality of your lifestyle during retirement. Specifically, the sooner you wish to retire, the lower the standard of your retirement will be; whereas retiring at a later age will allow you to cover higher retirement expenses. Consider the retirement ages mentioned earlier and  how this may shape the decisions around what age you choose to retire.

What level of expenses do you intend on covering in retirement?

Following your desired retirement age, the next crucial element in planning your retirement is determining the level of expenses you wish to cover. A modest retirement lifestyle will require fewer assets and ensure such assets last longer; whereas higher expenses in retirement will cause your super balance to decline faster, requiring a larger amount to be accumulated at retirement.

Will you have any large capital expenses at or during retirement?

Retirement often involves large one-off capital expenses, such as purchasing a new caravan, upgrading a car, a big trip overseas or repayment of residual debt. However, you need to be mindful that all one-off capital expenses essentially reduce the super balance that is designed to sustain you throughout retirement. The result is either a lower quality of life throughout retirement, or your funds depleting more quickly.

Once you’ve addressed these questions, you’ve taken the first real steps to setting up your retirement plan. Clearly defining your retirement goals will lay the foundation for every decision you make when developing your retirement plan. Additionally, prior to that, it will help you gauge whether your envisioned retirement is feasible.

So, how do you know if your retirement goals are achievable?

We can find out by performing some initial calculations. And I’ll show you how you can do just that.

3. Determining if Your Goals Are Achievable

To determine if your retirement goals are achievable we need to know 2 things:

  1. Your retirement goals, which we discussed in the previous step.
  2. Your current position (age, income, super balance, personally-owned investments)

With this information we can use a retirement planning calculator to figure out whether or not you’re on track to achieving your goals.

The retirement planning calculator that I recommend for beginners is the government’s Money Smart Calculator.

Under the about your section, simply input:

  • Your current age;
  • Your current income;
  • Your desired retirement age, based on your retirement goals in the previous step; and
  • Your current super balance;

Then, under the Advanced settings – Other section

  • Add in whether or not you are a homeowner;
  • The total value of personal investment assets owned outside of super; and
  • One-off capital expenses that you will incur, based on your retirement goals in the previous step.

The calculator will estimate the annual income you can expect to receive in retirement. You’ll then be able to compare this amount against the desired level of expenses you’ve outlined in your goals from the previous section.

You can adjust variables like your retirement age or target income to see how these changes might affect your outcome.

This tool will help you assess whether you’re on track to meet your retirement goals. If you’re off track, you may need to reconsider your retirement goals—such as reducing your expected income or delaying your retirement age.

Once you’ve confirmed that your retirement objectives are achievable, the next step is to determine how your retirement will be funded. Where will your income come from?

Related article: How Much Superannuation Do You Need to Retire?

4. Understand Your Retirement Income Options

An essential part of the retirement planning process for beginners is learning about your retirement income options.

There are various income sources available during retirement and understanding how each one functions can help you select the one that best suits your needs.

So what type of retirement income streams are available to you?

All Australian retirees will cover their expenses from one or more of the following retirement income streams:

  • Account-Based Pension – a flexible tax-free income stream started from your superannuation balance that allows you to choose your level of income and how the balance is invested.
  • Centrelink Age Pension – a taxable means-tested social security payment paid fortnightly, with the payment amount based on your level of income and assets.
  • Defined Benefit Pension – a guaranteed lifetime pension paid to certain government and semi-government employees who were part of a defined benefit superannuation scheme.
  • Guaranteed Lifetime Annuity – a guaranteed annuity payment paid for the remainder of your life, yet with no access to lump sums or ability to adjust pension payments.
  • Personal Investments – income from investments such as a share portfolio, managed fund investments, or rental income from an investment property, however, many retirees tend to simplify their financial situation at or near retirement, by selling their investment properties and contributing the proceeds to super.

The large majority of Australians will cover retirement expenses with account-based pension income that is supplemented by Age Pension payments (if eligible) while retaining adequate cash reserves in a personal bank account.

Now that you’ve defined your retirement goals and identified how you’ll fund them, what strategies can you use to strengthen your overall financial position?

5. Simple Strategies Leading Into Retirement

While there are many strategies to optimise your retirement plan, let’s focus on two essential approaches that should not be overlooked as you approach retirement, especially if you’re just getting started.

  1. Making Super Contributions – Superannuation ensures you pay no more than 15% tax on investment earnings and also allows you to claim a personal tax deduction for certain contributions. Therefore, considering how much you can get into super prior to retirement, including the types of contributions to be made, is an essential strategy to consider.
  1. Transition to Retirement (TTR) Pension – Should you wish to consider working after reaching age 60, a TTR pension should be high on your strategy consideration list. It can help you phase out of work into retirement, reduce debt faster, and minimise your tax while you continue to work.

With some basic knowledge, you might feel equipped to apply these retirement strategies on your own. However, these are just 2 strategies. There are many more that you can take advantage of. But without professional guidance, it’s difficult to maximise a strategy’s effectiveness, and mistakes can be costly.

In the lead-up to retirement, particularly if you’re just beginning to plan your journey, seeking professional advice is invaluable and is something that you should consider.

6. Get Professional Advice

As you can see, retirement planning involves many important steps. We’ve only touched on the basics here. If you’re serious about fully preparing for retirement, seeking professional advice is a wise next step.

Getting professional advice will give you confidence in when you can afford to retire, the retirement income you can achieve and the steps you should be taking between now and then. You can also rest assured in knowing that your retirement plan has been developed by a professional.

In saying that, there is a caveat. You need to be seeking advice from the right financial planner. Specifically, to ensure your retirement plan is developed specifically for your needs, I would suggest engaging the services from an advice firm that:

  • Specialises solely in retirement planning advice
  • Charges a one-off advice fee only
  • Does not ever charge any ongoing fees
  • Has absolutely no affiliation with banks, super funds, or their own investment products

If you can find a financial adviser that ticks all of these boxes, you’ve found the only way to achieve non-conflicted advice that will always be in your best interest.

For beginners, retirement planning might seem daunting at first. However, with the right information and a clear understanding of your options, it can become a manageable and rewarding process.

By defining your retirement goals, understanding different income sources, and assessing your financial situation, you lay a strong foundation for a future after work.

Remember, the key to effective retirement planning is starting early and revisiting your plan regularly to adjust for changes in your life and financial circumstances. By following the steps above, you’ll be well on your way to enjoying a fulfilling and financially stable retirement.

If you would like assistance with your retirement plan, Toro Wealth specialises solely in personal retirement planning advice. Our aim is to give you confidence around when you can retire, the retirement income you can achieve and how to optimise your financial position in the lead-up to retirement. If you’re interested in learning more about our service and cost, click here.

Chris Strano

Chris is a financial planning professional with over 15 years of experience, helping pre and post-retirees achieve their financial goals. He is also the founder and managing partner at Toro Wealth and SuperGuy.com.au.

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