When is the best time to start planning for your retirement?

Last updated on 28 September 2023

Funding Your Retirement

Young couple, woman and man, planning their finances for retirement with a laptop and piggy bank. — The idea of a plan is to ensure you can live the way you want to in retirement. [Source: Shutterstock]

Key points

When it comes to planning for your retirement, the key is the earlier you start the better
Your plan or future goals may change as you get older
Investments are a part of financial planning which can benefit from starting earlier in life

It is never too early to start financial planning for your retirement, in fact the earlier you start the better. Many sources suggest this should start in your 20s, when you start to accrue super from your employment.

However, it doesn’t mean that it’s too late to create a plan if you’re older and don’t have one yet, or that your plan can’t change as you get older. Often future goals and your idea of the lifestyle you want to have in retirement will change as you get older, which will mean adapting your plan, as well as the types of investments you use.

The idea of a plan is to ensure you can live the way you want to in retirement and won’t have to rely on the limited age pension.

If you are in your 50s, it is definitely time to look into planning your retirement, to give yourself time to get everything sorted and retire at the age you want.

Debts and purchases before you stop working

The earlier you start planning your retirement, the more time you have to figure out how you will want to live in retirement and how that differs from your lifestyle and regular costs at working age.

For example, you may be content to rent your home while working on a decent wage, but may want to buy and pay off a house before you retire so that you don’t have to set aside money each week for rent or mortgage payments.

It is a good idea to consolidate debts into one loan, manage your budget and cashflow and set yourself up to be debtless before you retire, as debts will become harder to manage without the working income you are used to.

This is likely to be front of your mind if you are older and already have a house, credit cards or a car loan, but is unlikely to be your top priority if you are in the first half of your working life and still leading up to making significant purchases like property.

If you set yourself up in a position to comfortably pay off any debt you have before your mid 60s this will help to remove any pressure you might feel to keep working beyond the retirement age you plan for.

With many people independently living at home for longer, consider what significant purchases you will want to make while working to set you up for a comfortable lifestyle in retirement.

Will you want to pay off a new car before retirement, with the intent for the car to last until you stop driving? Will you want to purchase a caravan to travel in when you retire? Or will you need to renovate your house to be able to move around safely if your mobility is impacted as you age.

Although it may be difficult to plan to have enough funds to cover future medical expenses, remember that as people get older they often procure co-morbidities, such as diabetes, which require regular medication and medical appointments.

You might have medical conditions already which are expected to need more management as you age, there might be common conditions that run in your family which you are susceptible to, or you might be completely unaware of possible future medical diagnoses.

Regardless, including the possibility of greater medical costs and possible care or paid support at home is an important part of planning ahead, even if you can’t envisage yourself needing to pay for these things at your current age.

Superannuation

You accumulate super while earning your income, but the amount which is paid into super funds only has a minimum, not a maximum.

This means at any age you can make extra super contributions so that you have more money to fund your retirement than you would have had from just the minimum superannuation guarantee.

Thinking about this from a younger age means you have more opportunities to put surplus funds away into super, and ultimately not only have more savings to draw on down the track but also be able to create more returns from your super as it will be a bigger sum.

Investments and financial planning

Starting to invest some of your income at a younger age can allow your investments to grow more before you capitalise on the returns to fund your desired retirement lifestyle.

If you currently don’t have a lot of money to put towards investing, start small first and then start building up your investment portfolio. From there, you can start diversifying your investments so that if one of your investments doesn’t give you the return you were hoping for in retirement the other investments will cover you.

Do research, whether that be with your financial advisor or on an investment option you are considering.

You need to understand your risk profile and choose investment options that best suit that risk profile. Just because one option is considered a good investment for someone else doesn’t mean it is a good investment for you.

For instance, many people consider owning property or stocks as a great investment option, but property can involve a high buy in for very little financial return and stocks are subject to market fluctuation from day to day, which might be too stressful for you.

A cautious and considered approach to investment will help you to weigh up options and understand the decisions you are making.

Consider the pros and cons of an investment. For example, will this investment make you a return straight away or in a number of years? Does this investment suit your financial needs or risk profile?

Watch out for get-rich-quick schemes or shiny advertisements, they are generally always too good to be true. Get proof that a suggested investment is a good investment before implementing any advice you see or hear.

Talk to a financial advisor about the options available to you and how to best plan for your retirement. They will give you specific, individual advice and must act in your best interests, so will be beneficial to the strength of your plan.

At what age did you start planning for your retirement? Tell us in the comments below.