Ask Paul: How can I start planning for retirement?

Dear Paul,

I'm going to be 50 next year. As a present, I'm going to ask for some retirement planning financial advice.

I  feel closer to retirement than to when I started work and feel now would be a good time to get specific advice to give me time to implement any recommendations. 

My wife and I have some funds, superannuation, and an investment property, some of which are overseas from periods working outside of Australia, so advice that takes into account Australian tax rules will be important.

Over the years, I've collected Money's articles on financial advice, but I know this area is changing rapidly. How would you advise me to go about seeking advice right now? - Martin

Well, Martin, as I write this, the adult kids and grandkids have just left our place. They popped over for brunch for my 67th birthday. The point here is that at my age and being semi-retired is not the time to be doing critical retirement planning.

Sure, we need to review our plans in line with changing legislation, but age 50 is a terrific time to be getting serious about retirement plans.

I'm not sure retirement is a good word anymore. I reckon the key goal is financial independence. We all need a plan for that, then you can work for fun, not necessity, or not work.

First up, while you sound organised, let's make sure you have a clear summary of assets, liabilities and income. Then we go to your current budget and look at what surplus income you have now. It's pretty easy to run a basic model to see what assets you are likely to have in, say, five, 10 or 15 years.

Next, you need to know what level of income you will need in retirement. Once you map that out, then you can see where you are.

Personally, I use about a 4% return on assets. I am also happy to run down investment assets for our life expectancy. This is an important issue. If you want to leave everything you have today, plus inflation, to the kids, you can really only spend 4% of your investment asset base each year.

This means $1 million is only likely to give you $40,000 a year, but you have vastly more to spend if you use capital and income from that $1 million. Then we get into all sorts of complexities, such as a part age pension as assets run down.

My view is to start with your tax adviser, especially as you have offshore assets. I'd talk to your tax people about their links to professional financial advice; they are likely to have trusted advisers they can refer you to.

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