As the nation drifts back to work and study after the summer break, it’s often a time to start putting your New Year’s resolutions into practice. For some, an extended holiday may have convinced you that you are ready for more of the good life and that it’s time to retire.

In the past, that would have meant leaving work for good. These days, retirement is far more fluid.

You might simply want to wind back your working hours to give your mind and body room to breathe. Or you may want to leave your full-time job but keep your career ticking over with part-time or consulting work. Others may dream of leaving the nine to five to run a B&B or buy a hobby farm.

Changing retirement patterns

There are already signs that people’s retirement plans are changing.

In 2019, the average retirement age for current retirees was 55 (59 for men and 52 for women), but the age that people currently aged 45 intend to retire has increased to 64 for women and 65 for men.

There are many reasons for this gap between intentions and reality. Only 46% of recent retirees said they left their last job because they reached retirement age or were eligible to access their super. Substantial numbers retired due to illness, injury or disability (21%) while others were retrenched or unable to find work (11%).

Retired women were also more likely than men to retire to care for others. But for people who can choose the timing of their retirement, there can be good reasons to delay.

Reasons for delaying retirement

As the Age Pension age increases gradually from 65 to 67, anyone who expects to rely on a full or part pension needs to work a little longer than previous generations.

We’re also living longer. A man aged 65 today can expect to live another 20 years on average while a woman can expect to live another 22 years. So the longer we can keep working and building a nest egg the further our retirement savings will stretch.

And then there’s COVID. If you lost your job or your hours were reduced during the pandemic, you may need to work a little longer to rebuild your savings. Even if you kept your job, you couldn’t go anywhere so you may have postponed your retirement plans. But now the COVID fog is lifting, and borders are reopening, retirement may be back on the agenda.

Whatever shape your dream retirement takes, you will need to work out how much it will cost and if you have sufficient savings to make it happen.

Sourcing your retirement income

The more you have in super and other investments the more flexibility you have when it comes to timing your retirement. If you plan to retire this year, you will need to be 66 and six months and pass assets and income tests to apply for the Age Pension. But you don’t have to wait that long to access your super.

Generally, you can tap into your super once you reach your preservation age (between age 55 and 60 depending on the year you were born) and meet a condition of release such as retirement. From age 65 you can withdraw your super even if you continue working full time.

But super can also help you transition into retirement, without giving up work entirely.

After a difficult year of COVID disruptions and uncertainty, the summer holidays can’t come quickly enough. It’s a chance to refresh and reflect on the year that was and hopefully set some goals for the year ahead.

Yet this year more than most, many of us may feel that our personal and financial priorities have shifted depending on our experience of the pandemic.

So now that vaccination levels are rising, borders are reopening and we can all plan with a little more certainty, why not take this opportunity for a financial reset in 2022.

Regrets, we have a few

While many people’s lives were turned upside down by lockdowns, not everyone suffered financially.

If you kept your job or were able to access COVID disaster payments, you may have saved money. Holiday plans were scrapped and restaurants, theatres and leisure activities were shut down.

In a recent survey of 2,000 Australians by the Australian Financial Planning Association of Australia (FPA), 11% said their financial position had strengthened over the past 12 months while a further 46% said nothing much had changed. But 17 % said their position had worsened and nearly one in four reported being stressed by their financial position**.

Worryingly, the survey found one in five Australians didn’t have enough savings to get through the crisis and 23% felt stressed about their finances. Their biggest regrets were not saving enough, spending too much on take-aways and non-essential items and not paying off debt quickly.

While many of us learned some painful lessons during the pandemic, that may be an opportunity to reset our priorities and do better in the future.

Lessons learned

The enforced lockdowns made us value simple things like the importance of family and community. But uncertainty about the economy, jobs and our personal finances also encouraged many of us to reassess our approach to money.

According to the FPA survey, 45% of Australians say the pandemic has made them more frugal. Large numbers also say they have increased savings (44%, paid down debt (41%t and created a budget (39%).

Smaller but still significant numbers responded to the pandemic by topping up their super, investing more outside super or increasing health insurance.

The big question now is, can we stick to these good habits and build on them in the year ahead.

Goal setting

When it comes to goals for the next 12 months, the FPA survey found people were split between hitting a savings goal (52%) and going on holiday (44%) as their top priority. Paying off the mortgage and reducing credit card debt were also popular.

Given the recent strong performance of shares and residential property, starting an investment plan is also high on the list of priorities. This is especially so among younger people who are using new digital platforms to take greater control of their investments, in and out of super

As restrictions ease and the economy recovers, hopefully we can all manage to have a bit more fun next year but get our finances in good shape at the same time.

To get the balance right, it’s important to give your personal and financial goals the attention they deserve and draw up a plan to help you achieve them.

3 tips to help reach your goals

A financial plan doesn’t have to rely on complex financial products or strategies. In fact, getting the simple things right is often best.

• Build a cash buffer to tide you over in an emergency. This was one of the biggest lessons of the pandemic. It’s generally recommended that you have around three months’ living expenses at call. This might be in a savings account or in a mortgage redraw facility.
• Manage your cash flow. Even high-income earners can fall into the trap of spending more than they earn. So, take a financial snapshot, noting your monthly income from all sources and the balances on your savings accounts. Then subtract your monthly expenses, including debt repayments. If there’s a shortfall, look for cost savings.
• Draw up a financial plan. We are here to help you set short and long-term goals, develop strategies to achieve them and provide support to keep you on track.

If you would like us to help you kick some goals in 2022, don’t hesitate to get in touch.

** All statistics in this article (unless otherwise stated) are from the FPA Money & Life Tracker Freedom Edition 2021: A snapshot of how 2,000 Australians have fared since COVID-19

Asset rich and income poor is the dilemma faced by many retirees. But there may be opportunities to boost your income in retirement by tapping into your biggest asset – your home.

With property prices booming, many retirees are finding that the home they have lived in for decades is worth a small fortune, but for various reasons they don’t wish to sell or downsize.

What many may not realise is that you can have your cake and eat it too. Or, in this case, convert part of the value of your home into an income stream while you remain living there.

The ability to borrow against the equity in your home without having to repay until you move out or sell comes in various guises, but the result is largely the same – an enhanced lifestyle in retirement. The extra income may allow you to enjoy some little luxuries, travel more, or pay for home improvements.

There are four key types of product on offer:

• Reverse mortgage
• Home reversion
• Equity release agreement
• The government’s Pension Loans Scheme (PLS).[refer]

None of these strategies should be adopted without careful consideration as they may have an impact on your family, your beneficiaries and – with the exception of the PLS – your Age Pension if you receive one.

As a result, we recommend you speak to us first to discuss whether accessing some of your home equity would be appropriate for you.

This is how these products work:

1. Reverse mortgage

A reverse mortgage lets you borrow money against the value of your home and take it as an income stream, a line of credit, a lump sum or a combination.

The amount you borrow is often determined by age. At 60 you can generally borrow 15-20% of the value of your home. This percentage increases by 1% a year.

The interest accrues and is paid when you sell, either on entering an aged care facility or from your estate when you die. The interest rate is usually higher than the standard mortgage rate, but you don’t have to make repayments along the way. Since 2012, reverse mortgages must come with a negative equity guarantee. This ensures you can never end up owing more than your home is worth.

2. Home reversion

Here you sell a percentage of the future value of your property at a reduced rate. It is not a loan, so there is no interest payable. However, there are immediate costs such as a property valuation and an upfront fee. And there is also the cost of losing the full benefit of your home’s increase in value over time. The more your home’s value increases, the more the provider will receive.

3. Equity release scheme

This third option lets you sell a percentage of the value of your home in return for a lump sum or an income stream. You pay fees which are periodically deducted from the remaining equity in your home, so your share diminishes over time.

4. Pension Loans Scheme

The Federal Government’s loan scheme is offered through Services Australia and the Department of Veterans Affairs.

You can access a voluntary non-taxable fortnightly loan up to 150% of the maximum Age Pension rate to bolster your retirement income with the loan secured against your home. You don’t need to be on the Age Pension to qualify but even if you are, this government loan does not impact your pension entitlements.

Your mortgage increases by the payment amount plus interest which currently stands at 4.5% a year. As with the other schemes, you don’t need to repay the loan until you move out or sell. And if your circumstances change, you can adjust the loan accordingly such as pausing payments.

All four options are variations on a theme of providing a better lifestyle in retirement.

If you want to find out if any of these options might play a role in your retirement income strategy, don’t hesitate to call us to discuss.