When you’ve worked hard all your life it’s only natural to want a relaxed retirement, free from financial worry. Figuring out the cash you’ll need and how you’ll get to that magic number is fraught with complexity.
It’s never too early or too late to plan, so read on if it feels that time’s passing at lightning speed with the end of your working life within touching distance.
Find out how you can still make a difference to your retirement strategy with careful superannuation planning as part of a holistic approach to your financial future.
How Much Do I Need to Retire?
There is no one-size-fits-all figure that’s going to cover everyone. If you’re the type that fancies flying first class around the globe several times a year, you’re clearly going to need more for retirement than a neighbour who enjoys living quietly at home.
There are 2 major dependencies:
- Your expectations
- The health of your overall finances
You may have heard a figure of $1 million bandied around as the ideal retirement figure. You’re not alone if you don’t have anywhere near that amount. Australian men aged between 60-64 have an average balance of $178,808 with women trailing behind at $137,051.
The Association of Super Funds of Australia (AFSA) has figures that show how much you might need during each year of retirement between 65 and 84 assuming you own your home. Here’s the lowdown:
Single People: $50k a year approximately for a comfortable retirement vs $31k approximately for a modest retirement.
Couples: $70k a year approximately for a comfortable retirement vs $45k approximately for a modest retirement.
The maximum age pension is approximately $27k and $42k respectively for singles and couples subject to eligibility, home ownership, assets etc.
How Much Super Will I Need?
Working this out will depend on your daily expenses and lifestyle. Here’s what you should weigh up:
- Your weekly spend on food and everyday products
- The number of times you eat out
- The number and types of holidays you take each year
- Possible repairs to your home
You should also plan for unforeseen costs like healthcare-related expenses. You’ll also need to factor in any debts especially if you still have a mortgage.
Remember we are all tending to live longer too. As a rule of thumb, women who are 65 today can expect to live to 88 years old and men who are 65 to at least 85 years old.
The Benefits of Seeing a Financial Services Provider
No matter how close you are to retirement age, a financial planner can take a broad look at your finances. Depending on your circumstances, they can suggest a tweak here or an investment there that could make all the difference to the quality of your precious retirement years.
An advisor can help you work out how much super you might need to retire and whether you’re currently on target. They may be able to show you how a few changes today could make a huge difference tomorrow.
Superannuation planning might involve:
- Salary sacrifice and making further contributions from your pre-tax salary
- Extra after-tax contributions from your salary, inheritance or tax refund
- Adding to your partner’s super if they’re not working or working less
Can I Add the Government Age Pension to My Income?
If you don’t have sufficient financial resources, like super, to see you through your retirement, the Age Pension could help. This is a government payment often referred to as a ‘safety net’ for those who meet the age and residency requirements. Almost two-thirds of Australians over 65 get a partial or full government pension.
There are a number of factors that will play into the final pension you could receive. These include:
- Your assets
- How much super you have
- Other income, such as rental returns, or dividends you may get during your retirement.
What Other Investment Options Do I Have?
Many of us are going to rely mainly on sound superannuation planning to see us through retirement. However, it’s always good to diversify your investments so you might also want to consider assets outside of super to supplement your retirement income.
A financial planner can help you to decide which investments are the right fit for you and your needs. Dependencies include your age, current financial situation and your risk tolerance profile.
Investing in financial assets is a common way to grow net wealth. That might mean putting your money in the stock market, for example. Those with a greater risk tolerance may be comfortable with these kinds of investments but they’re not for everyone.
Others may prefer to invest in fixed-interest options or property. Whatever investment you decide on, the power of compounding is going to help your investments to grow. Talking through the options with a financial planner can help you really understand the risks and pitfalls as well as your own level of risk tolerance.
How Will You Spend Your Retirement?
Some people find stopping work at retirement age a huge shock. For them, it has a detrimental impact on their lifestyle, identity and financial liquidity. It might therefore be worth easing your way into retirement with a “transition to retirement” strategy.
This would give you access to your super while you carry on working. Your preservation age typically means getting to the minimum age you must reach before you can access your super, possibly tax free.
If you are still working, then you can still get access to your super and use it to supplement your income but work fewer hours.
If you have concerns that you won’t have sufficient super to match the expectations you have for retirement, this is where it’s always worth seeking financial advice before reaching any firm conclusions.
It’s Always a Good Time to Talk About Retirement
It doesn’t matter if you’re close to retirement age or not, it never hurts to seek financial advice about your retirement strategy. Superannuation planning is likely to play heavily into your financial future, talk to one of the PAC Financial team today.
We are your retirement planning experts and can help you achieve your retirement expectations, wherever you happen to be on the retirement journey.