With the conclusion of our Debt Plan discussion last week, we are now moving onto step 7, Retirement Plan, bringing you a little closer to Becoming Financially Well Organised.

Some common questions we are asked when it comes to retirement planning are, “when can I choose to stop working?” and “how much do I need in order to live the lifestyle I want to live?” We aim to explore and answer those questions in this series. 

What is a Retirement Plan?

The goal of retirement is to achieve financial independence so that when you choose to retire, employment is optional rather than a necessity to survive.

A Retirement Plan ensures your assets are accumulated so their returns are sufficient to fund your retirement and Estate goals. You may choose to continue working, but this should be a choice you make.

For some people, it might mean they are able to set up their business so they no longer have to work day to day, but still enjoy the profits. For some it will mean maximising the value of their business. While for others, it will mean putting money away each month and letting it accumulate in assets that grow over time, so there are enough assets to replace their income without having to eat into the capital they have accumulated.

The key steps to developing your Retirement Plan are:

1. Work out what income you need in retirement, which will determine what level of assets you need to accumulate. The variables in this formula are different for each person and dependant on factors such as:

2. Once you know the level of assets you need, determine the mix between your active and passive assets. Active assets are those which you have direct control over the value of, such as your business. Passive assets are those that you have no control over, like investments in cash, shares and property. If you don’t own a business that you can sell, you need to focus on accumulating passive assets, or turning your business into one that is saleable.

3. Look at what these assets are worth now and take into consideration your costs and commitments, such as school fees, mortgage payments and any other costs you will incur. The reason you need to consider your costs and commitments, is because there are usually other priorities that are important, and you need to ensure your asset accumulation strategy fits with a healthy balance of personal goals.

This brings us to the end of part 1, Retirement Plan. Next week we will discuss the steps to get where you want as well as how to develop a structure.

In the meantime, if you need any help with your retirement plan, call 07 3833 3999 or email matt@fwo.net.au today.