We all need a regular income (cashflow) to meet the necessities of life, primarily food and housing, and many other needs as well. Most of us derive this income from work or our own businesses, for the duration of our working lives.
What happens when we can no longer work, or no longer choose to work? The cash flow stops, or if you are over 65, your income drops to the national superannuation amount of $24,000 pa. (after tax for a single person).
The retirement cliff face
Too many people get caught out with this drop in income, which is often referred to as “the retirement cliff face”. The 4 issues are;
- Not knowing what your retirement income might be and failing to plan ahead
- Spending too much on housing
- Thinking you have to retire at age 65, or stopping work too soon
- Not learning enough about investments and passive income before retirement
Plan ahead & seek more knowledge
There is no doubt, those who plan ahead usually get a better outcome. Even if you are already over 60, any planning is better than no planning.
Many people have little or no idea just what their income will be when, or if, they stop work at age 65. A financial advisor can help you work out what your cashflow/income might be if you stop work, and it is always a very useful exercise.
Housing
People aged 55 to 65 commonly have a $600,000 to $800,000 house and $100,000 to $200,000 in savings. Clearly the savings can produce cashflow/income but the house cannot. Some forward thinking, restructuring, and maybe even a move (sooner or later) could make a big difference. After all, what is the point of having the big house with 2-3 rooms you don’t use and not enough cashflow/income?
Working your money a little harder
If you invest in a properly diversified conservative to balanced portfolio, you should make some 2% to 3% pa. more than you would invest your money in the bank.
$200,000 x 2.5% more than the bank = $5,000 pa.
$5,000 pa. x 25 years in retirement = an extra $125,000 to feed your required cashflow
Work a bit longer
If you think your savings might fall a bit short, consider working a bit longer – say 2 more years. That is two years you can save more, and also not dig into your savings. If your savings can grow and compound for those extra 2 years, they may well last up to 4 to 5 years longer at the other end of your retirement. Something worth considering.
If you do choose to work longer, make sure you take regular breaks to do some of your “bucket list” retirement activities while you are still working.