Q: I am 53 years old, my wife is 48. Our total super is $135,000. We have a house worth $500,000, with no mortgage. Our combined salary is $140,000 a year.We have no other investments. Question: I am 53 years old, my wife is 48. Our total super is $135,000. We have a house worth $500,000, with no mortgage. Our combined salary is $140,000 a year.We have no other investments. Please suggest an investment strategy for the next eight to 12 years before we retire.

A: As you have paid off your home and plan to focus on retirement, the key objectives should now be determining when you plan to retire, how much income you will need into retirement and what other capital expenses you need to plan for.

Imagine that your are retiring tomorrow and critically assess how much income you will need for day-to-day living expenses. Try living on that amount of money on a day-to-day basis now to make sure that reality is in line with expectations. If you plan to travel, factor that cost into your annual living expenses into retirement. Most retirees budget to spend $10,000 a year on travel in retirement.

The earlier you identify any financial shortfalls, the sooner you can address any required changes for now or into the future. Once you have a handle on your income and capital needs, you will then be in a position to assess how much you have in savings and how it will grow between now and retirement. The variables, other than reducing retirement lifestyle, will be: possibly accessing capital by downsizing the family home or selling other assets; delaying retirement until you can afford it; or easing into retirement by continuing to work part-time.

While investment performance is a consideration, your ability to fund for retirement will typically be constrained by three other factors: your cashflow requirements to live now; time left to save money for the future; and your ability to get as much as possible into the superannuation system. Superannuation remains the most tax-effective investment vehicle to fund retirement. There are generous tax concessions available via super that you should optimise before considering other options. There are limits on how much you can put into super a year. The earlier you start target funding your retirement, the greater likelihood you won’t be constrained by these limits.

There are a number of online calculators that will assist in modelling retirement planning. One of the more comprehensive calculators can be found at www.amp.com.au/myretirementsimulator. If there is one time in your life that you should seek advice, it is in planning for your retirement. Find out if you are on the right track by talking to a financial planner. If a change of strategy or direction is required, better to find out as early as possible, before it is too late.

This article was published in The Australian on 24 September 2011. A direct link to the article can be found here.

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