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Start Planning Your Retirement Early

In the early 1980s, I started doing the occasional talkback radio segment on Sydney radio station 2BL. Retirement was something many callers wanted to discuss. It seems to me that at that time, people planned to retire at 65. Most financial planning was fairly haphazard and tended to take place after the date of retirement.

Today, almost two decades later, we have changed. People plan to retire much earlier and better health means we are living much longer. It has now got to the point where some people will spend more time in retirement than in the work force.

This makes retirement a serious business. A 55-year-old male will now live for another 23.8 years, on average, and a 55-year-old female 28.2 years. On top of this, our expectations for retirement have changed. We do not expect to stay at home all day minding the grandchildren. We hope to be healthy, active and doing those things that we did not have time to do in our working lives, such as travel – and in my case, play more golf!

Now, the bad news here is that an active lifestyle tends to cost more. Travel can be done cost effectively, but it still requires money. You will want to run a car, be able to eat out occasionally, and not have to worry about the cost of a meal with friends.

Don’t get me wrong. You don’t need a fortune to live well. In fact, most people don’t have a fortune to retire on and, today, around 74% of 65- to 69-year-olds are on an age pension.

A retired couple I know live on a public service pension, plus an investment portfolio of around $150,000. They own a modest but comfortable home. Sure, they are well set up, but not dissimilar to many other retired. Between the income from their portfolio and the pension, their annual income is around $25,000. Due to a few of the simple tax strategies like income splitting and franked dividends, they pay very little tax – which help a lot.

What fascinates me about this couple is that they lead a truly global lifestyle. In retirement they decided they wanted to learn the languages and culture of other countries, so they live four months a year in Australia, four months a year in Italy and the other four months in France – all on $25,000 a year. Sounds ridiculous doesn’t it? But they are able to do it, and this is how:

  1. They rent their home for at least six of the eight months they are away. Yes, this is a hassle because they have to store all their personal possessions with their family, but they rent it out fully furnished for a bit below market rent and do very careful reference checks on the people moving in.
  2. The eight months they are away each year, in France and Italy, they take a small apartment well away from the tourist haunts and they find that they can live more cheaply than in Australia. Remember, they can now speak both languages fluently so they mix and eat with the locals at local, not tourist, prices.
  3. They book and pay for their airfares well in advance to get the best deals.

Even if the last thing you want to do is live overseas, my point is that your retirement should be, and can be, a time when you reap the rewards of your working life.

Okay, so these days you need to start planning your retirement early. If you are getting close to retirement, you need to start thinking about a number of other things as well:

  1. What are your plans for your retirement? What do you want to do and what will it cost?
  2. Will your assets provide the income you need to live comfortably? Can you top this up with a pension?
  3. Where will you live? How will this impact on your lifestyle and your family?
  4. What are your views on estate planning? Does your will reflect your wishes?
  5. Investment will become very important. Do you need an adviser, and if so how do you choose one?
  6. What plan do you have to ensure your retirement is a stimulating time in your life?

My best tip on retirement is, of course, to plan early. For younger readers of this article, or those of you who can influence younger readers, please do think about it and encourage people to plan for retirement from the day they start work. An 18-year-old only needs to put aside about 12% Of her salary into super and she can retire on 75% of her final salary, linked to inflation. This would provide quite a decent standard of living. At 35 years of age the requisite contribution increases to around 30%, at 45 around 49% and at 55 you’d need to save 108% of you salary to retire on 75% of your final salary. Now I know some good savers, but putting aside 108% of your salary would not be easy!

Please don’t feel depressed if you are retired or close to retirement and have saved very little. After all, the importance of saving has only been made clear in the last few years. Fortunately, we do have a reasonable age pension system. I know it isn’t generous, but it does provide a minimum standard of living and is certainly better than nothing.

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How Much Do You Know About Job Market?

I know that some reader of this articles will have a secure job (whatever that means), some will be approaching retirement and others will be retired already. So you may be wondering why this article about job market has relevance for you.

Well, from a purely vocational perspective it may not. However, from an investment point of view you could find it of value – by identifying the expanding and contracting areas of the economy.

For most of us, our ability to earn an income is easily our most valuable asset and its absence would make life look very different indeed. It is important to remember, though, that the job market today won’t be the job market of tomorrow.

Pretty obviously, our population is getting older. We are having fewer children (62.9 per 1000 American-born female on average), living longer (average life expectancy for women is 81.5 years and men is 75.9 years) and retiring earlier.  This, to me, is a fascinating indicator to where future employment will lie. Into the next century, the growth areas for employment and, therefore, the ones that I am focusing on as an investor, are based on what I believe our ageing population will need.

For starters, there will be heightened demand for carers for nursing homes and retirement villages. For those who decide to stay in their home for as long as they can, this will also provide a boon for the domestic-help industry. Likewise, you don’t have to be Nostradamus to see that there will be an increase in the demand for medical nursing staff. It’s also expected that the baby-boomer for medical nursing staff. It’s also expected that the baby-boomer generation could boost the local tourism industry as they have time, and more importantly, the money to travel when they retire.

Information Technology

It probably comes as little surprise that many pundits rank technology and communications as the number one growth area, with the service industries – particularly finance and banking – not far behind. Despite the so-called ‘tech wreck’ in early 2000, the larger technology companies such as Telstra and Optus have continued to grow, this creating jobs. This trend is set continues.

On the flip side, there is some uncertainty about the future profitability of some smaller technology companies. You need to keep in mind the relative ‘newness’ of many of the smaller players operating in this field. These companies, especially start-up dot com businesses have not returned the expected profits. Only time will tell how many will survive in the short term, let along going on to become viable in the long term. However, the current assessment of the IT industry indicates rapid change, with ongoing new developments, leading to growing employment opportunities. Overall, the future for the technology sector looks good, although it might take some time before the industry settles down completely post the ‘tech wreck’.

The Services Sector

The services sector is ranked just behind IT and telecommunications as a future growth industry. It covers a broad range of vocational areas such as community services; wholesale and retail trades; public administration and defence; finance, property and business services; and recreational services. In recent years careers in sales have been particularly popular, with industry forecasts suggesting that growth in this area will continue.

The good news for people looking to enter sales is that many workers can match their skills and experience to work in it. This area also experiences high employee turnover and, according to the Department of Employment, Workplace Relations and Small Business’s Job Futures Report, projected jobs growth in sales exceeds the national average.

Over recent years, telemarketing and cell centers have also experienced major growth and this trend is expected to continue as demand for these services grows. The upshot of this is that good sales people and telemarketers should have little problem finding work. Another good thing about sales is that the skills can be learn and developed on the job and generally require little formal training.

The services sector is also playing a major role in changing the traditional way we work. Companies in this sector are now leaning towards more flexible staffing arrangements and working conditions including contracting, part-time work and casual employment, as well as outsourcing.

In the past, people grew their own vegetables and tended sheep to provide wool for clothes, now we simply throw our groceries into a supermarket trolley, or even order them online. The next step could see us outsourcing all of those mundane domestic tasks (like ironing, cooking and cleaning) that all too often otherwise don’t get done!

Researching employment opportunities

Whether you’re trying to change jobs or fast-track your career, I strongly urge you to take some time to research the job market to pinpoint the ‘growth industries’. With the work landscape constantly changing, it’s even more important that you get the right qualifications, skills and experience to make yourself more employable and take advantage of careers that offer solid opportunities in the future.

I know it might be stating the obvious, but it’s really important that you plan your career carefully. It makes sense not only to find a job in an area where there is growth potential (such as IT or banking), but to also seek out a progressive company that has a commitment to training and career progression.

So where do you begin your research? A good starting point is the Job Futures Report that I’ve Already mentioned. It predicts that the jobs with the best prospects will be the ‘professional’ occupation such as computing; business/information; sales/marketing and advertising; health; social welfare and accountancy/auditing. These generally require you to have a degree or higher qualification. Other jobs, such as careers/aides that don’t call for the same level of training, also have strong growth prospects.

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