Retirement should be a time to enjoy the fruits of your life’s work - not a time to stress over finances. Whether you’re five years away or just beginning to think about retirement, planning ahead puts you in control. With the right tools and strategies, you can create a retirement plan that aligns with your lifestyle goals. The earlier you start, the better prepared you’ll be.
Many people think of retirement as a time to relax and enjoy life, but without some planning, finances can become a source of stress. Having a plan in place can help you avoid common pitfalls and have the resources you need for your later years.
Why Retirement Planning Matters
Planning for retirement isn’t just about how much money you’ll have - it’s about how you want to live. Do you plan to travel? Downsize? Support family? Knowing your lifestyle goals helps shape your financial decisions.
Without a clear plan, you may find yourself working longer than expected or making compromises in retirement. That’s why early and realistic planning is worth the effort.
Understanding Your Retirement Needs
The first step in any retirement plan is getting clear on what you actually want. Some useful questions to consider:
- When do I want to retire? Do I want an early retirement or a phased approach?
- What kind of lifestyle do I want in retirement? How much will that cost and how will I fund it?
- How long do I need my money to last? Some people retire in their 50s, while others work into their 70s or beyond.
Most Australians and Americans spend around 20 to 30 years in retirement. That’s a long time to fund without regular income. A common rule of thumb suggests you’ll need 70 to 80 percent of your pre-retirement income each year in retirement - but that depends heavily on your lifestyle choices and where you live.
Estimating Your Future Costs
To build a realistic retirement plan, understanding where your money will go is a useful starting point. Retirement expenses often look quite different from working-life expenses - some costs decrease while others, like healthcare, tend to increase over time.
Consider breaking down your likely expenses into key categories:
- Daily living costs (housing, food, transport)
- Health and aged care
- Travel and leisure
- Unexpected costs
Inflation affects all of these, and healthcare costs in particular have historically risen faster than general inflation. The Retirement Financial Planning Spreadsheet from FinancialAha can help you forecast expenses, visualize income sources, and test different retirement age scenarios with these factors built in.
Identifying Your Income Sources
Retirement income typically comes from multiple sources, and understanding how they fit together is an important part of the planning process. Common sources include:
- Superannuation or 401(k)
- Government pension or social security
- Personal savings and investments
- Rental income or annuities
- Part-time work or business income
The more diversified your income, the more flexibility you have if one source underperforms. Some people rely heavily on a single source like a pension, while others piece together several smaller streams. The FinancialAha spreadsheet allows you to input each source and see how they combine over time.
Closing the Gap
If your projected income doesn’t match your desired lifestyle, there are several approaches worth considering. Some people focus on increasing savings by boosting super contributions or retirement account deposits. Others reevaluate their retirement lifestyle expectations or look for ways to reduce expenses.
Investment strategy also plays a role - ensuring your investment mix aligns with your timeline and risk tolerance can affect long-term outcomes. And for some people, working an extra year or two can significantly increase retirement funds while reducing the number of years those funds need to cover.
The projection tools in the FinancialAha spreadsheet let you test these adjustments and see how different combinations affect your overall picture.
Staying on Track
Retirement planning isn’t a one-time exercise. Regular check-ins - at least annually - help ensure your plan remains realistic as circumstances change. Markets move, expenses shift, and life brings surprises both good and bad.
During these reviews, it’s useful to look at investment performance, changes in expenses or goals, and any new income opportunities or tax changes that might affect your situation. Some people find working with a financial advisor helpful, especially as retirement approaches and the stakes feel higher.
Planning Your Way
Retirement is your time, and there’s no single right way to plan for it. Some people work with professional advisors, while others prefer a DIY approach using tools like the Retirement Financial Planning Spreadsheet from FinancialAha. The spreadsheet approach tends to be more cost-effective and gives you direct control over your projections and assumptions.
Whatever approach you choose, the key is getting started. Even rough estimates are more useful than no plan at all, and you can refine your projections as your situation becomes clearer. With a framework in place and a habit of regular reviews, retirement planning becomes less daunting and more a matter of gradual refinement over time.
Related Tools
- Retirement Financial Planning Spreadsheet - Focused on retirement projections, income sources, and expense forecasting
- Financial Planning Template - Comprehensive financial planning covering net worth, cash flow, savings, and long-term projections
- Net Worth Tracker - Track assets and liabilities to monitor your overall financial position