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6 steps to financial wellness in retirement
November 2024
In retirement, managing your finances wisely, staying flexible, and preparing for the unexpected can help you make the most of your hard-earned savings and turn it into a comfortable and stress-free retirement.
Here's a six-step checklist to support your financial health throughout your retirement years.
Step 1: Review your income sources
A steady income is crucial to maintaining financial stability in retirement.
It's important to regularly review your income sources to ensure they meet your lifestyle needs and explore options to maximise them.
If your income feels tight, consider speaking with a financial adviser to discuss alternatives, such as adjusting investment allocations, withdrawing super strategically or exploring ways to improve your current financial situation, even without additional income sources..
Step 2: Make a budget using the 50/30/20 rule
Creating a retirement budget ensures your money covers both essential and enjoyable aspects of life. The 50/30/20 rule is a simple way to divide your money:
- 50% for essential expenses, like housing, utilities, and healthcare
- 30% for lifestyle choices, such as travel, hobbies, or treating family
- 20% for savings and low-risk investments to create a safety net for unexpected expenses as well as preserve your capital
Regularly reviewing your budget helps keep expenses under control so you can enjoy your retirement years with minimal financial stress.
Step 3: Consider downsizing
Moving to a smaller home often reduces maintenance costs and utility bills. It can also free up home equity, providing a lump sum that can be invested in low-risk options like annuities, term deposits, or bonds.
The benefits of downsizing go beyond finances. Many retirees find that a smaller home simplifies life and reduces upkeep. When considering downsizing, think about factors like location, accessibility, and proximity to family or healthcare facilities.
Step 4: Build an emergency fund
Unexpected expenses can arise, such as medical costs, car repairs, or home maintenance. Having a dedicated emergency fund provides a safety net and peace of mind.
Aim for three to six months' worth of essential living expenses in a savings account. This approach allows you to handle surprises without disrupting your primary retirement income or investment strategy.
Step 5: Track your assets and liabilities
Knowing your net worth is a powerful tool in retirement. It shows the overall health of your finances by comparing assets, like property, super, and savings, with any outstanding debts. Reviewing your net worth periodically also allows you to adjust spending or reallocate assets as needed.
Many retirees choose to move a portion of their wealth into low-risk assets, such as cash investments or bonds, to avoid market volatility. This strategy not only protects your capital but can also offer a modest income, helping you stay financially secure.
Step 6: Create or update your will
An up-to-date will is essential to ensure your assets are distributed according to your wishes. A well-prepared will helps minimise family disputes and administrative hassles during a difficult time. Estate planning may also include setting up power of attorney and healthcare directives, so your family can make decisions on your behalf if needed.
Consider working with a lawyer to review your estate plan, especially if there have been recent changes to your assets or family situation. Clear and precise instructions help protect your loved ones and preserve your legacy.
Financial wellness in retirement: key takeaways
Taking control of your finances in retirement can provide comfort and security. By following these six steps will help you enjoy a well-prepared, peaceful retirement, knowing you're financially stable and ready for the unexpected.
The information in this article is current as at November 2024 and may be subject to change.
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This article is issued by OnePath Funds Management Limited (ABN 21 003 002 800, AFSL 238342), and OnePath Custodians Pty Limited (OPC) (ABN 12 008 508 496, AFSL 238346, RSE L0000673) as the trustee of the Retirement Portfolio Service (ABN 61 808 189 263) and the product issuer. OnePath Funds Management and OnePath Custodians are part of the Insignia Financial group of companies, consisting of Insignia Financial Limited ABN 49 100 103 722 and its related bodies corporate (Insignia Financial Group).
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