Funding your retirement lifestyle as well as preparing for the frailty years
How much is enough?
A common question we get asked about preparing for retirement and retirement living is “how much is enough?”. This, as you can imagine, is a hard question to answer because it is very personal. Generally, it will depend on the person's lifestyle aspirations, family commitments and health.
Retirement Living Landscape - a snapshot
The statistics show people are waiting longer to go into retirement living. There are many reasons attributed to this, but one reason could be that more subsidised home care services are available for people over 65 years.
Key insights from the 2020 PwC Australia/Property Council Retirement Census, the biggest annual survey of the retirement living sector show:
- 64% of residents are female and 58% of units are occupied by a single resident;
- The average age of new residents is 75 years of age, while
- the average age of all residents is 81 years,
- 8-9 years average is the average time residents live in a village,
- There is a 261 day average from vacant possession to settlement,
- 90% of residents are choosing to pay in part, or in full, for home care services, pointing to a growing trend for residents to age-in-place and support their own lifestyle needs, rather than just rely on government-funded support.
Reference to the full report: https://campaign.propertycouncil.com.au/retirement-census-2019
You need to be able to afford to go into a retirement living arrangement. It is important to do your numbers and do not over commit.
Short on cash: Living in a retirement village is a little different to living at home. You just need to remember that if you run out of cash, you are unable to use a reverse mortgage.
Tip: do budgets carefully and not overspend or get advice.
Selling time: When it is time to leave the village your unit may need to be sold before you get your funds. This can take a long time in some villages:
Tip: ask how long the average sale is taking and think about how this might impact you.
Budgeting
You need to know how much money is going IN and OUT the door.
There are many budgeting tools available to help you do this. We use a program called My Prosperity. We favour this program because it is a highly interactive web and app-based tool which gives one view of your assets and income. There are live feeds for your bank and portfolios and important documents such as insurances, wills and estate planning documents can be uploaded.
Contact Phillips Wealth Partners to organise a demonstration.
Frailty years.
When moving into a retirement living community, it is important to continue to plan at least 15 to 20 years ahead. Get help to plan for worse case. We call this The Frailty years, that is if you need 24-hour supportive care. Factor in, how long it will take for you to get your money once you leave the retirement community.
Rule of thumb, if budgeting to have enough money in the bank to cover a full year of expenses.
The upside to downsizing
Superannuation downsizing. In July 2018, you can top up your superannuation unrelated to your contribution cap. If you are aged 65 or more and sell a property that has been your main residence AND you have owned this property for 10 or more years, you may be able to contribute some of the proceeds to your super account.
Singles can add $300,000 & for couples $600,000 into superannuation, regardless of your work status, super balance or what you’ve already contributed under the ordinary concessional and non-concessional contribution caps.
EXAMPLE:
Bob is 77 years and Merle is 70 years old. They are both retired. They plan to sell their home on 20 August 202 after owning it for 12 years and receive $1.2 million. Neither has made a downsizer contribution in the past.
They can both make downsizer contributions of up to $300,000 each ($600,000 in total). They can do this even though Merle does not meet the contribution 'work test' and Bob is over 75 (which are some of the eligibility rules that apply to personal non-concessional contributions).
They can make these contributions regardless of how much they already have in their super accounts and the contributions won’t count towards the non-concessional contributions cap.
What strategies could be used?
A comprehensive retirement portfolio should include a range of strategies to provide a secure income doe people in retirement living, as well as income invested for growth, in order to take care of the occasional extras and one-off expenses.
What strategies do we use?
- Exchange-traded funds (ETF’s ) with an Income focus as the investment objective
- Managed Funds with active dividend focus must be Zenith rating of Recommended or highly recommended
- Annuities (lifetime)
For more information on any of these strategies, contact us at Phillips Wealth Partners.
Case study: Jane
Jane came to us fearful she would lose some of her pension after selling her home and moving into a retirement village.
This case takes you through an approach using different strategies to generate income for Jane.
