‘How much money do I need to retire?’ ‘Can I retire now?’ ‘I heard 67 is retirement age, so I will keep working till then’. ‘I heard you need a million dollars to retire?’
For most, the years leading up to retirement are met with a battle between excitement and uncertainty. You’ve likely spent decades building your career, potentially raising a family, and working hard to create financial security. But as retirement approaches, one question often comes to mind: What do I actually need?
Retirement looks different depending on lifestyle, goals, and financial circumstances. However, there are some key areas that most pre-retirees should be thinking about.
What Lifestyle Do You Want to Live?
The first step is deciding what retirement means to you. Do you plan to travel regularly, or spend more time at home? Do you want to help children or grandchildren financially, or focus on your own hobbies and well-being? The cost of your retirement will largely depend on the lifestyle you’re aiming for.
This will assist you in developing an understanding of your regular income needs throughout retirement, as well as plan for once of expenditure.
This can often be a difficult concept to project, so completing a budget or tracking your current spending habits can be a useful starting point, as well as giving consideration to any outstanding debts you may need to address.
Whilst very general, the ASFA Retirement Standard provides a guide of estimated expenses for both comfortable and modest lifestyles, for couples and singles to maintain a healthy lifestyle in retirement, as well as what this might provide you. The below is an extract for those who own their home in retirement.
|
|
Comfortable Lifestyle |
Modest Lifestyle |
Age Pension Only |
|
Single Household |
$52,383 p.a. |
$33,386 p.a. |
$29,874 p.a. |
|
Couple Household |
$73,875 p.a. |
$48,184 p.a. |
$45,037 p.a. |
|
What does it provide you? |
Premium private health insurance. Occasional restaurant meals, take away coffees. Annual domestic holidays and occasional overseas trips. Own a reasonable car. Regular leisure activities (memberships, exhibitions etc). Confidence to use air conditioning in the home, afford all utilities. |
Basic private health insurance. Limited meals out at inexpensive restaurants. Annual domestic holiday or a few short breaks. Own a cheaper, more basic car. Infrequent leisure activities. Need to keep a close watch on all utility costs and make sacrifices. |
No private health insurance. Only local club special meals. Occasional short break trips. Limited vehicle budget. Infrequent trips to the movies. Limited budget for home heating in winter. |
Full list is available on the ASFA website here.
Understanding Your Sources of Income
Retirement income looks different for everyone, but can come from a range of sources:
-
Your superannuation assets.
-
Age Pension or government benefits – depending on eligibility.
-
Investment income from assets like shares.
-
Interest on cash and term deposits.
-
Rental income.
Longevity Planning
Australians are living longer, which is great news, but it also means retirement funds need to last longer. For many people, retirement can stretch 20–30 years or more, and everyone has essential elements they want to cater to:
-
Ensuring we never have income of less than $x in our lifetime, no matter what happens;
-
Having flexibility to access capital as you please;
-
Bequeathing a particular value through your estate; or
-
Maximising social security where possible.
This makes it essential to explore strategies that ensure your retirement income streams cater to your objectives. Depending on your needs, this may include:
-
Account based pensions;
-
Lifetime annuities;
-
Supplementing your assets with an age pension when eligible;
-
The level of ‘risk’ you take in your portfolio;
-
Innovative retirement income streams; and
-
Considering downsizing your home in future.
The Bottom Line
Retirement doesn’t have a silver bullet, or just about a number in your super fund, it’s about creating the life you want and having the financial confidence to enjoy it.
Sitting down with one of our financial advisers, identifying your lifestyle goals, understanding your income needs, and planning for longevity, you can step into retirement with certainty and freedom.
How can we help?
Get in touch with one of our knowledgeable financial advisers today for an obligation free consultation. Make sure you maximise the opportunities available to you.
"