How to plan for retirement in your 50s

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plan retirement in your 50s
Financial Advisory
Head of Wealth
August 11, 2021
minute read

We help you understand the ins and outs of early retirement, and what you need to think about when considering this option

For many, retiring at 50 is ‘the dream’. The ability to give up work and live life on their terms. In practice, though, it’s not often that easy. But it can be done.

In this article, we’ll look at the key things you need to think about when considering retiring in your 50s.

Ready to get started now? Get in touch with a Liston Newton financial adviser, and book in for a free retirement planning strategy session.

Why retire early?

retire early

When it comes down to it, many people don’t actually want to ‘retire’, and be left with nothing to do. But by the same token, they don’t want to feel obligated to continue working just to pay bills and make ends meet.

When and how you retire is a personal decision, and is based on many factors. But the aim is generally always the same: financial freedom. That is, the ability to make work optional.

This is what financial freedom gives you: the choice to retire on your terms. Choosing to step back from work, reduce the number of days per week you do work, or even move into a self-employed or consultancy role—and enjoy living your life, while you feel that you still can.

The big benefit of retiring early is the ability to enjoy it while you’re able to. You’re still fit and healthy, and reasonably young—you don’t have to wait until you’re 70, and unable to do everything you want to.

What to think about when considering early retirement

There are a number of points that must be taken into consideration when looking at early retirement.

1. What’s your motivation to retire early?

The idea of early retirement is an attractive one. But you need the motivation to be able to achieve it. Ultimately, you need a reason to start planning.

So when considering early retirement, we recommend creating a detailed plan of what your goals and objectives are. It shouldn’t just be ‘not work’. So map out what you want from financial freedom: It might be travel, spending more time with family, giving back to your community, or moving out of town.

The first step to planning your early retirement is to envisage the life you want.

2. How much will you need to retire early?

how much do you need to retire

How much you need to retire depends on a number of factors, which are compounded if you’re considering retiring in your 50s.

How much do you want to spend?

Consider what your retired lifestyle will look like. To work this out, track your current spending—and be sure to accommodate what you want to include in your retirement, such as travel, or spending time with family.

Will you have your debts fully paid down?

If you’re looking to retire early, paying off your debts is a key pillar of achieving this. So you need to consider where your mortgage is at: how old will be you once this is paid off? And then, what’s next? If any debt does remain, you need to factor this into your annual retirement spend.

What are you comfortable investing in, to provide the income towards your early retirement?

What and how you invest now, and in your later years, will have a big impact on your retirement planning.

When you invest money wisely, and avoid any losses along the way, you’ll be able to reach your retirement goals quicker. However, wise investing doesn’t mean being timid. If you’re too conservative, and leave money in cash and term deposits, you may struggle to build a big enough nest egg.

Conversely, taking on too much risk could see you lose money on bad investments, meaning you’ll need to work longer than you planned in order to build up the amount you need.

You need to construct a portfolio that meets your specific needs, not just a portfolio that has the best returns.

The way to determine the optimum investment mix is to conduct financial modelling of your current net wealth, and what you’re looking at achieving. This will help you decide what to invest in, how much you need to contribute to super, and how long you should invest. Your financial adviser can provide you with expert advice on what’s best for your situation.

Will your assets be held inside or outside your super account?

Careful tax planning can have an enormous impact on your retirement income. With the right planning, once you retire you’ll be able to stop paying any tax on your income and capital gains. This means you need fewer savings to retire in the long run, as you’re not paying money to the ATO each year.

Your tax adviser can work with you to determine where its best to hold your assets, and how to optimise your holdings in order to minimise the tax you pay

3. Contributing to your super

As you inch closer to retirement and the planning is well underway, how much you actually contribute to your super should be a big consideration. With the right planning, a clever superannuation strategy can save you thousands in tax each year.

You can also consider topping up your super with salary sacrificing or voluntary contributions.

It’s also important to look at the type of super fund you’re in, what fees you’re paying each year, and the assets you’re invested in. Your adviser can provide financial modelling to help you make decisions on how much money should be moved to super, and where to invest that money.

4. Emergency funds

When planning for retirement in your 50s, common advice suggests that having an emergency fund to cover things like illness, injury, or the potential of being out of work.

The amount you should have in this emergency fund depends on your circumstances. Having the money to cover two or three months’ worth of expenses is a safe bet. However, business owners, self-employed, or those with irregular income would be better off with 4-6 months’ worth of expenses in their emergency fund.

As you’re keeping this money in a savings account, there will be fees involved with holding it there. But the value of having money set aside for emergency situations, and the peace of mind it delivers, far outweighs these fees.

5. Life insurance

While we’re a big believer in life insurance, we also believe you shouldn't hold it a day longer than you need to.

As you get older, the annual premiums increase. With a well-planned insurance strategy, you should be able to decrease your insurance cover each year, as your net wealth increases. Your ultimate aim is to get to a point in time when you can eliminate your cover altogether.

6. Will and superannuation nominations

Having a professionally planned will drafted by a qualified solicitor ensures that your estate is looked after in the manner you want, regardless of what happens to you.

But it’s not just a set-and-forget affair. Regularly reviewing your will ensures that it stays current as your needs and assets change. It can also allow for more tax-effective planning, particularly in how your estate will be distributed to your beneficiaries.

Your super, on the other hand, is managed externally to this. It’s important that you set up a binding nomination, so you can choose who receives your super in the event you’re not able to claim it. This can be done through your super fund, and must be updated every three years.

The final word

As you can see, if you’re wondering how to plan for retirement in your 50s, there’s a lot to think about. The key things to consider are:

  • How much you need to live comfortably, within your lifestyle
  • How to manage your investments so they continue to benefit you
  • How to plan your estate for the future.

However, with the right planning, you can avoid the pitfalls of early retirement, and live the rest of your life on your terms. After all, that’s the dream.

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