If you don’t, it’s time to start planning . . . no matter what age you are.
What do you dream of in retirement? Spending time with your family? Travelling? A beach house?
Do you have the assets to make your dreams a reality? If not, you need a Retirement Plan.
A Retirement Plan ensures your assets are accumulated so their returns will fund your retirement and estate goals. It sets a clear path to financial independence, so that when you choose to retire, employment is optional rather than a necessity to survive.
The key questions you need to consider in developing your Retirement Plan are:
1. How much money do you need in retirement?
This will determine what value your assets need to be. The variables that affect this are different for each person, and include:
- Your age at retirement
- Your desired lifestyle
- Your current income
- The estimated return on your assets
- The likely period of time between retirement and passing away
- What assets you want to distribute to your family
2. What is 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, you need to focus on accumulating passive assets. If you do own a business, you need to focus on turning it into one that is saleable.
3. What will the NET value of your assets be? What is the gap between what you have now and what you need for retirement?
Look at what your assets are worth currently. Now project what they will be worth at the time you wish to retire, take into consideration your costs and commitments, such as school fees, mortgage payments, living expenses 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. You should then develop a strategy to close the gap between what you have and what you need.
A Typical Scenario
Andrew and Mary Smith are both 50. They want to retire at 60 with a retirement income of $120,000 pa.
Here’s how we helped the Smith’s improve their retirement position from $2,449,647 to $4,162,358
- Increase the business growth from 5% to 10% per annum (by increasing profits and reducing risk).
- Direct the business sale proceeds into superannuation, meaning they will pay zero tax on the proceeds under the small business tax concession.
- Borrow to fund business assets, freeing up capital to pay off the home loan, reducing non-tax deductible debt, but still paying off debt.
- Contribute the maximum tax deductible amounts into super (funded by increased profits and tax savings as a result of restructuring debt and additional super tax deductions) and benefit from the low tax environment which creates a compounding effect, meaning greater earnings over the long term.
- Ensure that the assets to fund their pensions in retirement are structured in the low tax superannuation environment.
By implementing these simple strategies, the Smith’s net financial asset position at retirement is now $4,162,358 and their capital will last well beyond 30 years.
It is that simple to close the gap and to gain peace of mind knowing that your retirement goals will be achieved.
Call us on 07 3833 3999 to start planning for your retirement today.