The two questions I am asked more than any other are: “how much do I need to retire?” and “do I have enough to retire?”
The answer, unfortunately, is never a quick one and really can’t be answered without first understanding your own income needs and the lifestyle you want to achieve once you leave work.
Often people guess at a figure they believe will be enough or use a figure a friend of theirs has quoted as being adequate for them – the reality, however, is that everyone has different lifestyle needs and different things they want to achieve in retirement.
The Association of Superannuation Funds of Australia (ASFA) Retirement Standard benchmarks the minimum annual cost of a comfortable and modest standard of living in retirement each year. Currently, they anticipate that a couple needs approximately $41,446 per annum for a modest lifestyle and $63,799 for a comfortable lifestyle. For singles, it’s $28,775 for a modest lifestyle and $41,446 for a comfortable lifestyle. This is very much only a guide however.
Determining What You’ll Need In Retirement
The starting point to any discussion is understanding your income needs and building on this with any other potential costs you anticipate in retirement.
A good starting point to understanding what you need to live off is putting together an adequate budget of required living costs. The term budget typically makes people shudder, but it’s a great way to understand your spending needs. Some potential expenses in retirement may include ongoing travel, a new caravan or car, home renovations, or funding of grandchildren’s education costs.
The reality is everyone will have different plans and thus different amounts of capital required to fund income needs into the future. This is why understanding the particular requirements for your situation is crucial.
Determining If You Have Enough To Retire
Once you truly understand what you’ll need in retirement, you can then accurately start to answer the question of whether you ‘have enough to retire’. It will also allow you to start putting in place plans to address any future shortfalls. Often areas of consideration concerning this may include:
- Superannuation and potential contributions to increase
- Investing outside of superannuation
- How money is invested – risk vs return
- The role of Centrelink in helping to meet income needs
- Minimising any tax payable with income and investments
- Working longer or reduced hours to help to help provide ongoing income
- What do you do with your superannuation once you retire and can you access it?
- Outstanding debt
- Changing legislation
- What happens to your money if you pass away and is there tax payable?
- Downsizing to a smaller property.
Today’s population is generally living longer. However, this also means that people need to service their income needs for a potentially longer period. The average male retiring today at 60 is expected to live for a further 23 years, whilst a female at the same age is likely to live a further 26 years. With modern medicine improving health outcomes, this figure is expected to continue increasing over time.
Why Retirement Planning’s Important
Often people consume much of their retirement savings too early or cease working with an inadequate amount. This can lead to a reliance on Centrelink being the primary source of income in retirement or result in people needing to return to work later in life. It’s worth noting that the current full age pension amount for a couple is $18,962 each per annum or for a single $25,155 per annum, so income can be quite limited if you need to rely solely on Centrelink.
At Lambourne Partners, we have decades of experience helping people understand their retirement needs and putting in place effective strategies to ensure people can live their best lives in retirement. Contact our team below or call us on (02) 4969 6600 for an appointment to discuss your situation and how we can help.