2015 sure flew past, didn't it? We're almost at the end now, which means we'll soon be celebrating Christmas and New Year's Eve, which for a few of us means making a few resolutions we know we'll never keep.
Make yourself one promise though, that you'll spend at least one morning thinking about your finances and your goals for 2016. Even if you decide to change nothing, time spent planning is never wasted. This takes on extra importance if you're close to retiring.
Readers may have seen a recent article published by Yahoo Finance on how to better plan for retirement. As the initial one was intended for a US audience, I've adapted some of its points for Australian readers.
Here are five retirement resolutions to make for 2016:
- Plan for a long retirement
Although some recent research has indicated that retirees are under-spending for fear of running out of money, it's far better to plan for a long retirement than to plan for a short one and over-spend.
The retirement age in Australia is currently 67, and the average life expectancy for men and women is 80 and 84 years, respectively. You'll have to live at least fifteen years on your savings and possibly the pension, and if you're male there is a reasonable chance your wife will out live you. Life expectancy is expected to rise steadily in the future.
For this reason, it is also important to ensure that both partners are knowledgeable on your finances and the financial planning isn't just done by one person.
- Avoid emotional attachment to investments
This means not getting excited by the next hot tip or share price movements and instead focussing on your goal, which is a steady income stream and possibly some capital growth. Finance author Liz Davidson was quoted in Yahoo as saying: "Resolve to rebalance your investments without emotion. If a fund in your account has gone down in value, think of it as buying on sale instead of losing money."
The kind of companies you should own during your retirement – businesses like CSL Limited (ASX: CSL) or Cochlear Limited (ASX: COH) are a great opportunity when prices fall. Cochlear, in particular, seems to go 'on sale' semi-regularly.
- Pay off debt
This is a great tip, and a no-brainer. Debt will see you going backwards extra fast in retirement, especially if you can't live on the returns from your investments and must draw down on your capital as well.
Another great tip was to extend the amount of time before you retire. Retiring even one year later can result in a significant boost to your financial situation. Alternatively consider gradually transitioning to retirement by reducing your hours or switching to part-time work.
- Prepare for the unexpected
As you will know very well by the time you hit retirement, things can go wrong. Make sure you are comprehensively insured (life, health, home, contents, and car insurance) as well as ensuring that you have a buffer of cash to draw on.
Don't put all your money into stocks or property, especially since having to liquidate these quickly because you need cash can often result in unnecessary fees or capital losses, which could prove disastrous in retirement.
- Own the right shares
Less risky shares are the name of the game in retirement, and you want strong cash flows, stable debt as well as a stable and or growing business. Miners are out – no BHP Billiton Limited (ASX: BHP) or Rio Tinto Limited (ASX: RIO), but dividends are in.
Consider instead Macquarie Group Ltd (ASX: MQG), Scentre Group Ltd (ASX: SCG), or Flight Centre Travel Group Ltd (ASX: FLT).
