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This commentary is written by Vanguard Principal, Corporate Affairs & Market Development Robin Bowerman. The title is Practising for retirement

It was first published on Tuesday 23 August 2011

And is read by Michael Mullins

Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.

The latest round of sharemarket turbulence is no doubt encouraging many people nearing their intended retirement date to consider working for a little longer until their investment balances hopefully are back on track. 

For those in the position to keep working until an older age than once anticipated – and who still gain satisfaction from their occupations – this can provide a valuable boost to their retirement savings. 

The postponing of retirement provides more time to save while the shorter period in retirement means that less money is needed than otherwise to finance a desired standard of living upon eventually leaving the workforce. 

And significantly, those who delay their retirement may be fortunate to leave the workforce and to begin drawing on their savings at time when the markets are riding high – or at least higher than at present. 

An article this month in DailyFinance, a US online newsletter published by AOL, quotes a financial planner as suggesting that investors who decide to delay retirement should consider revamping their pre-retirement lifestyles. 

In an interview with the article’s author, Laura Rowley, financial planner Christine Fahlund advises these pre-retirees to think about participating in some of the activities they had intended to concentrate on in retirement. Such activities will probably include much more travelling and taking up new leisure activities. 

“Think about practising retirement rather than leaving the workforce, Fahlund says. “If you’re thinking about buying a sailboat, it’s better to do buy it with a salary than taking a big bite out of your nest egg on the first day you retire.” 

In the Australian context, this idea of practising a retirement lifestyle before retirement is particularly interesting given our transition-to-retirement pensions. These pensions allow many fund members over 55 to adjust their working lives and savings patterns in a tax-effective way. 

Superannuation assets supporting the payment of a superannuation pension are no longer taxable within the fund, and the pension payments are tax-free once members turn 60. And, of course, many members continue to make salary-sacrificed super contributions while drawing a tax-free or concessionally-taxed pension.

And that concludes the column

Practising for retirement

from Robin Bowerman,  Principal, Corporate Affairs & Market Development at index fund manager Vanguard Investments Australia

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Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.