We're Living Longer: How to Plan your Finances for Longer Lives

In the last half a century, the average life expectancy of both women and men in Australia has continued to rise and rise - from around 74 years old to 84 years old.

The number of people hitting the incredible 100-year-old mark is also on the rise and this poses a serious problem for many people. Most notably, how to fund your life after retirement.

The Cost of Ageing

Once you stop working and stop receiving a monthly pay cheque, you'll start to realise the need for a retirement fund.

But even with a fund with seven digits, you might be surprised by just how hard it is to get by for another 20, 30 or even 40 years. Major expenses you’ll need to pay for include:

  • Medical expenses

  • Unforeseen disasters

  • Maintenance of your home

  • Enjoying retirement! Such as holidays away or spending time with loved ones

An American study found that a typical couple would expect to pay anywhere up to USD$275,000 on routine care throughout their retirement, which is staggering to consider.

While Australia has a good safety net in this regard, it does suggest that health will begin costing many of us money in retirement. Simply put, a million dollars in the bank is still a relatively small amount to last you comfortably through retirement, so it’s time to readjust your thinking.

Top Tips for Better Preparing your Finances

Now you understand the importance of greater financial independence, it’s time to get to work putting in place plans to help ensure you are ready. Regardless of whether you’re 20 or 60, there is plenty for you to do. So here are six key steps to take.

1. Rethink your Investments

In the past, it may well have been enough to rely on a social security package with a handful of investments, to fund you throughout retirement. Well, that's no longer the case.

Indeed, you need to thoroughly review your investment strategy and find more ways to diversify your portfolio for long-term gains.

There is no simple way of calculating investment need in retirement, so be wary. To illustrate this, one rule of thumb thrown around in the past was to subtract your age from 100 and then the final number would be the proportion of your investments that are in growth assets like shares and property.

While this may have been a simple way of looking at things in the past, it is fraught with issues. Particularly due to the fact we are living longer.

The most important aspect of retirement planning investment advice is balancing the short term need for liquidity with the longer term need of growth on your investments, as both are essential to longevity of your assets over time.

2. Develop a Strict Spending Plan

As much as earning money is important for your retirement, you should also be looking at ways to cut spending.

And this doesn't mean cutting spending now, it means finding ways to reduce your cost of living once you retire. Yes, you can find ways to cut back on things like holidays and groceries, but how about the biggest money-saver of all?

That’s right, you might want to consider relocating geographically. If you've spent your whole life living in a city for work, you will likely find that moving a few hours outside your current area could cost you half the price.

For example, it costs upwards of $1 million to buy a home in Sydney or just $402,000 for a home in Hobart. Or head north to Brisbane where the median is $670,000.

Coupled with this, there are government incentives available now that encourage you to downsize and give you the opportunity to top up your retirement funds in super, which is the most tax effective and convenient way to manage your retirement income needs.

3. Consider Working Longer

Though it’s not exactly ideal, you might want to consider pushing your retirement age back a bit. Even a year or two longer can have a dramatic impact on the amount of funds you have ready to use once you do retire.

Not only will you be able to earn and save more, you'll also be able to benefit more from your pension scheme.

Especially if you have any incentivised plans, such as ones where your employer adds in money alongside yourself. In fact, if you choose to retire at age 66, as opposed to 62, you could see your overall income in retirement rise by around one third in value.

This is because every year extra you work has the double benefit of meaning you are accumulating more, while equally not relying on your funds for income need.

4. Think Carefully About your Health

One of the worst things that can happen to you during your retirement is that you develop a very serious health condition that immediately drains away your funds.

Well, this scenario is all too true for those that have neglected to take out suitable health and life insurance that cover such things. As you get older, you are just as susceptible to unlucky accidents.

But you will also then be open to a whole range of age-related illnesses such as dementia or Alzheimer's. And even if you are covered for basic care, I expect you'd rather be located somewhere nice and comfortable? As opposed to the cheapest place that your family and you can afford. There are insurances that can help to protect you and cover you under such circumstances.

5. Seek Professional Advice

Financial planning is a complex topic, and no one expects you to know exactly what to do from the outset.

Instead, it is wisest to seek professional advice and assistance from a qualified financial planner. They will be better versed in all investment opportunities available to you and can help you to craft an effective long-term plan.

At first, you may be put off by the fact that you have to shell out even more money in order to gain this advice. But rest assured, it’s worth it.

The knowledge a reputable Financial Planner can give you will be far greater in eventual monetary value than what it costs for their services and don’t be afraid to ask them to show you how. They can also provide key assistance in ensuring your finances don't get abused as you get older.

6. Constantly Revisit your Plan!

Lastly, and most importantly, always come back to your retirement plan.

Just because something makes sense and will work when you're 40, it doesn't mean that plan will actually hold up in the way you want 25 years later. Any number of things could have happened in that time that could have negatively impacted your available funds.

Perhaps investments don't grow quite as you'd like, maybe you lose your job and spend a year unemployed, or perhaps there's another recession and house prices fall in value.

Regardless of whatever happens, always revisit your plan, ideally every six months at a minimum. This will also open you up to thinking of new and creative ways to help make sure you're fully prepared.

By following these five crucial steps, you should find yourself in a much healthier financial situation by the time retirement comes around.

And rightly so! After years of hard work, you will need that time to truly relax, enjoy life and do all the things you’ve always wanted. So craft your plan and get started today!