Although retirement planning shares many of the same principles for the average Australian, circumstances can differ for high-net-worth individuals. So, how does a wealthy individual approach their retirement plan? There are many steps to take to keep them protected.
A high-net-worth individual (HNWI) has at least $1 million in cash or assets. This can include stocks, bonds, property, or other investments. According to Savings.com.au, the forecast level of growth of high-net-worth individuals in Australia is 2.5 times the previous 2017-2022 statistics.
Defined as having a net worth of more than $AUD15.5 million, this is set to grow by 71.1% between 2022 and 2027, or up to 3,789,628 individuals in 2027.
This article will explain the benefits of retirement planning, how to develop a strategy that works, how a financial adviser can assist, and what you need to do to achieve financial freedom during retirement.
Retirement income planning is setting financial and lifestyle goals and creating a strategy to achieve them for a comfortable, stress-free retirement. No matter how significant your assets may be, a comfortable retirement is achieved by those who make informed decisions about investing, saving, and managing the money you have.
The annual average budget for a comfortable retirement is $70,482 for a couple aged 65 and over or $50,004 for a single, according to the Association of Superannuation Funds of Australia (ASFA). Average super balances are around $690,000 combined for couples and $595,000 for singles. Of course, for HNWIs, expectations for retirement income are typically much higher, requiring more planning for the ultimate super fund balance.
In this case, you need to consider how much money you need to retire when you ideally want to retire and how to manage your present investments. A good retirement plan gives you security, maintains your desired way of living, and makes for a smooth transition away from full-time work.
It doesn't matter how significant your assets or portfolio may be. Developing and implementing the right retirement plan is critical for your future. So, what should you consider to secure a stress-free future?
Retirement means you'll no longer get a paycheck for full-time work; a lump sum must be saved to support your lifestyle and cover your expenses. Consider your superannuation income, monthly payments, where you live, income streams, life expectancy, and what needs to be calculated overall.
Think about your ideal lifestyle. Where do you want to live? What hobbies or travel plans do you have in mind? Other expenses include healthcare needs, housing costs, leisure activities, and how inflation will affect these.
Regularly review and adjust your plan. Your financial situation can change, so you must revisit your goals periodically. One way to approach this is to partner with a certified financial adviser. You may also need to stress-test your plan against new scenarios, market downturns, unexpected expenses, and higher risks due to adding to your portfolio. Always look at your retirement plan at all corners.
Estimate future income sources. What income sources will you gain or lose? Consider your day-to-day income, investment income, property yields, the amount of super you have saved, and general income from business interests. Your entire situation–both present and future –will affect how much you need to commit to live comfortably.
Rather than sticking to one investment for your financial future, \ consider spreading your assets across different industries, locations, and asset classes. If you are unsure, seek professional advice.
Diversifying your current investment portfolio is a great way to grow it over time. Bonds, stocks, real estate, private equity, private pensions, savings, and hedge funds are options to consider. When it's time to retire, you'll have many investments that should be able to generate diverse income streams that all play a role in achieving a comfortable lifestyle.
As stocks or shares are bought in a company, this means purchasing individual stock shares or investing in a fund of ready-made equities. The value of this share and the money you make is tied to the company's performance. Equity investments have a substantial rate of return, but they come with more risk and market volatility.
If you're looking for a more stable return and a steady income stream, fixed income is less volatile than other markets. As a loan to companies or the government, fixed-income products are usually corporate or government bonds that pay an amount to investors over a fixed period. These investors are paid in the form of dividend payments or interest.
As a secure, short-term investment strategy, cash investments - such as money market funds or certificates of deposits - can protect your money from market risk. Capital can benefit from interest payments as bank savings accounts can grow with interest.
Unsure about how to plan your investments? As a financial advisor servicing Malvern, Brunswick and Moonee Ponds, Dominium Capital can steer your portfolio in the right direction for a stress-free retirement.
What happens when your assets are gone? Establishing a solid estate plan outlines how your assets and property will be distributed after you pass away. And as a high-net-worth individual, you may need more than the average will.
Setting up a trust can protect your estate from creditors, reduce tax liability, and allow you to restrict how your assets are shared with beneficiaries. A trust can also prevent lengthy, expensive legal proceedings such as probate- validating the deceased person-which can chip away at a descendant's estate.
As a high-net-worth individual, cash flow projections can impact your financial security. How can it be detrimental to retirement planning, and how can you make cash flow work in your favour?
Reduces your purchasing power over time. The exact amount of money at present will buy a lot less in future. Even with higher-income assets, you are not immune to inflation. Investments and income can be affected by rising prices. For example, property and healthcare increase faster than general inflation, so you must have future finances to prepare for it.
Tax implications. A higher net worth can still be affected by copious amounts of tax, especially with investment choices such as stocks, bonds, real estate, and taxable income. Always contact a financial advisor for guidance on navigating the impact of inflation.
As a high-net-worth Australian, legally reducing your tax liability will likely be a priority. Strategies such as salary sacrificing income and making regular payments to your superannuation, can assist in lowering your taxable income. How else can you reduce your taxes for a more lavish retirement?
Make use of rebates and tax offsets.
Consider a self-managed super fund which may prove more flexible than conventional super funds in managing the taxation of your member balance.
Time the sale of assets and making contributions to super. Your circumstances may allow you tax effectively to make larger contributions to super; this may have the effect of legitimately lowering your overall tax obligations.
With any long-term plan, setbacks can happen, even with a high income. An emergency fund is essential for a more expensive lifestyle, as higher-income individuals have more financial responsibilities. For example, your home or car may be more costly to replace.
Money doesn't always keep flowing either, and emergency money can help you transition into retirement if you choose to do so earlier. Consider saving up to 6 months of expenses for emergency medical care, repairs, or family matters. If your income is regular, a 3-month fund may be perfect for you.
Unsure about how to budget for early retirement income? As an experienced financial advisor servicing Richmond, St Kilda, and Brunswick, we help you put together a plan that puts you in control of your financial future.
Reaching your retirement financial goals is important, but it's not worth taking on additional risk. The more you earn, the more you are susceptible to lifestyle inflation. So, how can you retain your high net worth without falling into risky traps? Don't outlive your money or your retirement assets.
Prepare for change in markets. If there's a market drop just before your retirement and you want to take out an asset, the value of this investment can shrink. If you own a home or have an investment property, the rates and value of your home can fluctuate. To avoid these risks, change to a more conservative portfolio such as stocks or bonds; a moderately conservative asset can reduce the risk of you outliving your money.
Draw down your assets carefully. Speak to a qualified financial advisor about implementing a withdrawal program. This will help you safely withdraw a percentage of your assets each year, considering your age, risk tolerance, and liquidity.
Consider inflation, which can reduce your spending power. Even a 2% inflation rate can reduce your money saved from $ 100,000 to $81,000. This can drop lower after 25 years, so invest in what can grow along with inflation, such as stocks or real estate.
Always have risk capital. This is money you can invest or trade without losing your lifestyle. As an investor or trader, you have more risk, so resist putting much of your money into a risky trade.
Plan your Australian super fund strategy, considering your contributions, withdrawals, and investment returns. So, what can work as a successful strategy?
Voluntary contributing to your super has many tax advantages for high-income earners. You can lower your current tax obligations while increasing your future retirement income, also known as compounding interest.
Concessional contributions include those made from your before-tax pay, often done by an employer as salary sacrifice or packaging. If your income is up to $ 250,000, the tax rate is 15%, and if you earn more than $ 250,000 a year, an added 15% is payable.
Non-concessional contributions mean you can top up your super using after-tax pay. The limit for assistance is $ 100,000 per financial year, and this allows you to grow your wealth over time and be able to access tax-free when it's time to retire.
Want to live your life on your terms? At Dominium Capital, our financial consultants serve clients in Melbourne, Sydney, and across Australia, and we implement a financial strategy at this stage of life.
Creating wealth solutions for all private clients, we help you grow your superannuation portfolio into a healthy one. Professional and knowledgeable of market conditions and money matters, we support your financial independence, helping you live the prosperous life you envision for retirement. Contact us to help you build wealth, protect your assets, and get more out of life.
General Advice Warning: This article does not consider your personal circumstances and is general advice only – unless otherwise stated.
You should not act on any recommendation without considering your personal needs, circumstances and objectives. Dominium Capital recommends you obtain professional financial advice specific to your circumstances.
Any general financial advice is provided by Dominium Capital Financial Advisers Pty Ltd, a Corporate Authorised Representative of Dominium Capital Pty Limited ACN 142 188 510 125 AFSL 461653
