Many of us spend most of our working life with some sort of vision of where they see themselves during their retirement. But have you calculated the amount of money YOU will actually need for your retirement?
You may have heard you need $1 million – it’s the figure often thrown around as the quintessential figure needed for a comfortable retirement. The truth is, there really is no ideal number. Retirement looks different for everyone and it’s important to consider your own situation to discover your magic retirement number.
Whilst a seven-figure retirement may sound great, reality has it that the majority of people heading into retirement will have nowhere near that amount. According to a 2019 report by the Association of Superannuation Funds of Australia Limited (ASFA), Australians aged between 60-64 are retiring with a median balance of $154,452 for men, and $122,848 for women.
Most Australians these days can expect to live well into their 80’s, even longer as we become more health conscious. If you stop working when you’re 65, you’ll need to fund your retirement for at least 20 years or more. Whilst having a figure in mind for a savings goal is helpful, it’s more important to understand what a comfortable retirement looks like to you. Once you establish this, you can formulate how much money you need to retire.
Here are some things to consider to help you establish your retirement goal are:
1. Think about the kind of lifestyle you want in retirement
The type of lifestyle you live play an important role in your life once retired and how much money you may need.
Do you imagine buying a caravan and touring Australia as a grey nomad? Would you like the freedom to be able to afford an overseas holiday? Even simple things like seeing a show or going to the movies once a month, eating out at a restaurant each week, or even enjoying a daily cup of coffee at a café.
What every one of us really wants is the freedom to make choices, the choices to do what we want, when we want, without being restricted or worried by our finances.
Consider how you live now. Would you like to continue the same standard of living as you currently do or are you happy to cut back on your activities and live a quieter lifestyle. A modest lifestyle means different things to each of us, which is why it can be helpful to have a standard to compare against.
2. Know your expenses
Knowing how much super you will need in retirement will largely depend on your lifestyle and expenses. To work out your expenses, consider:
- Will you be paying off a mortgage or paying rent?
- How much do you spend on groceries and everyday items?
- How often do you eat out at a restaurant or cafe?
- How many local, domestic or international holidays do you take each year?
- Do you have any debts, such as car loans or personal loans?
As well as everyday expenses and the occasional splurge, it’s also important to have a buffer available for unexpected costs. Often the unexpected can happen such as house or car repairs, medical bills or emergencies and it’s important to be prepared.
3. Consider how long you’re likely to spend in retirement
Whilst none of us can predict the future, the truth is Australians are living longer. It’s estimated that 40% of women and 65% of men who are 65 today can expect to live well above the average life expectancy to at least 90 years old.
This increased life expectancy is great news, but it means we may need to plan for a longer retirement. It may better to play it safe and to assume you will live longer than average when calculating your retirement income.
4. Will you be eligible for the Government Age Pension?
If you’re unlikely to have enough financial resources, such as super and other investments to fund your retirement, then you may be eligible for the Government Pension.
Currently this is the main source of income for over 70% of Australian retirees. The amount you receive will depend on a range of factors including assets, how much super you have and any other retirement income you may receive.
It’s important to understand if you are likely to be eligible for the aged pension and how much you are entitled to receive. Currently, the maximum ages pension for a single person is just $440 per week or $22,575 per year. If your living expenses are likely to be much higher than this, it’s important to plan for other sources of income, such as superannuation and investments.
5. Consider a transition to retirement (TTR) strategy
For some of us, particularly those who’ve busied our entire adult life working at least 40 hours a week, retirement can feel daunting. Rather than facing a massive shock both financially and emotionally by stopping work all together, you may be interested in easing your way into retirement through a transition to retirement (TTR) strategy.
If you’ve reached the preservation age (the minimum aged allowed to access your super), you may be eligible to access your super whilst still working part time. This will mean you may get the best of both worlds, keeping busy working whilst accessing funds to supplement your income.
If you’re worried about your super balance and would like to continue to work full time, you can choose to boost your super while saving on tax through a TTR strategy.
6. Speak to an expert
Working out a plan for your retirement, how much super you need and how long it is likely to last is a complicated process. Once you’ve done the research and established the lifestyle you’re looking forward to living, you may want to consider speaking with an expert. Speaking with an expert who has done the research, knows the superannuation industry inside out and understands everyone’s circumstances are different can be worth its weight in gold – literally.
Whether retirement is years away or it’s just around the corner, the great thing about super is that it’s never too late to make changes right now for a huge difference.
With the right investment strategy your money will compound over time, and you’ll be in a better position to afford the things you want.
Which means the sooner you start doing it properly, the better.
Contact an adviser today for more information….
