One in two Australians retire earlier than planned due to unexpected circumstances like illness. By identifying your projected retirement position and your retirement goals, you can develop strategies that ensure you have the savings to live the lifestyle you want.

However, there is such a thing as saving too much, and this can actually lower the quality of your working years and be a major source of stress. Retirement planning requires finding a balance between saving too much and too little, making it important to have direction and a strategic plan to help support your post-work vacation.

Replacement rate

The percentage of your annual employment income that is replaced by your pension, or your retirement income, is referred to as a replacement rate. Understanding your replacement rate can help you plan a percentage of your pre-retirement income that you will need to save, to maintain your standard of living once you retire.

A common mistake most retirees make is overestimating this replacement rate, and end up with too much savings and a lower quality of work life from the stress of saving. Consider the general rule of keeping replacement rates between the range of 54 percent and 87 percent. Factor in other sources of income including your superannuation fund, government entitlements or planned inheritance.

Housing

Consider planning your living situation post-retirement well in advance. An ideal strategy is to live in a house whose mortgages you’ve paid off during your work years. One of the biggest continued expenditures for retirees is the cost of paying for the house they choose to live in. Living in an assisted care facility might take up more of your retirement funds, so ensure that this is factored into your calculations while planning your retirement funds.

Super funds

You are able to access your super funds once you reach the preservation age, which is based on where you were born. Consider a transition to retirement (TTR) strategy as a way to boost your super and save on tax while you work. This is also a great way to offset income loss from reducing your work hours. Transferring some amount of your super to an account-based pension can kickstart your TTR pension, which reduces the tax you pay for these pension payments and cushions the move into retirement.