Retirement is a time to enjoy the fruits of your many year’s of labour, not a time to scrimp and save. You need to make sure you have enough personal savings and in your superannuation to make your retirement a comfortable one.
At this stage of life, you shouldn’t have children to worry about, may need one less car and tax shouldn’t be as big a burden if you structure your finances correctly, but, what you do have in terms of savings, has to last you a lifetime. Which raises the question: How long will my money last?
I would get asked this question 8 out of ten times by people getting close to or in retirement. While there is no simple answer to this question, we can get closer to an outcome, if you know the following:
You understand your spending habits and budget to get it right
Do you have capital expenses to cater for and do you want to plan for any one-off major expenses? e.g. major trip, home modifications or new car upgrade. You need to take these major costs into consideration before investing for your income needs.
The table below will give you a rough idea of how much money you need to support a modest or comfortable retirement. It applies for people retiring at age 65 who will live to an average life expectancy of about 85.
|ASFA Retirement Standard||Annual Living costs||Weekly Living costs|
|Couple – modest||$34,226||$656|
|Couple – comfortable||$59,236||$1,136|
|Single – modest||$23,797||$456|
|Single – comfortable||$43,184||$828|
Another way to estimate how much money you will need in retirement is to assume you need 67% (two-thirds) of your income before you retire in order to maintain the same standard of living in retirement. This estimate is only suitable for above average income earners.
ASFA estimates the lump sum needed to support a comfortable lifestyle for a couple is $640,000 (or $545,000 for a single person) assuming a partial Age Pension. ASFA also estimates that because a modest lifestyle is mostly met by the Age Pension the lump sum required to support it for a couple is $35,000 ($50,000 for a single person).
Have you completed a proper budget to estimate how much you’ll need in income to live on? The difference between a modest lifestyle and comfortable lifestyle would be in the little extras such as holidays, gifting, dinners at restaurants etc.
So, if you haven’t prepared a proper budget it may be time to get it done
Can you apply for Government support
Any benefit in pension entitlements will help supplement your income needs that caters for your lifestyle expenses. Any Government pension benefit can take the pressure off drawing income from your assets, savings or super/pension. This in itself will help your money last longer.
You understand how much money you have and the length of time you can invest
Everyone knows we are living for longer. Medical advances and healthier lifestyles mean that life expectancy is rising and is likely to continue rising in the future -i.e. as we age our life expectancy gets longer.
Official life tables, such as those provided by the Australian Government Actuary and the latest tables from the Australian Bureau of Statistics (2010-2012) shows half of males turning 65-years-old can expect to live another 19 years, to age 84 while for women the average life expectancy is 87, on average. However, a further study by Mercer shows a white-collar male retiring at age 65 today has a 50 per cent chance of living to 88, or a further 23 years. For women, there have a 50 per cent chance of living to 91.
With such a long – and lengthening – time horizon, retirees should still consider their approach to risk and how to invest their savings.
You understand the Risks of investing
Just because you have retired, doesn’t mean you need have to take an extra-conservative approach to investing. Your money still requires to grow and there is still time to invest in more aggressive investments, such as shares and property trusts, but only if this is within your comfort zone.
A well balanced asset allocation should cater for your short, medium and long term needs.
Putting all this together can be daunting for most. If you find there’s a gap you are finding hard to bridge then I suggest you talk to one of the Adviser fp financial planner’s who will be able to pinpoint the problem and find a solution to help you get back on track towards your retirement goals.
Financial Planners can help plan your retirement by:
- reviewing your financial situation to create a plan that reflects your goals and values
- modelling different scenarios that help determine how much money you will need each year in retirement
- work with you to develop a financial strategy that creates the life you want in retirement, and make sure you keep on track – by being your guide along the journey to retirement
If you would like to know more or to arrange an obligation free appointment with our team CLICK HERE