Are you ready for retirement?
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- By Greg Thornton
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- Date posted:
- 30 April 2021, 10:30 AM
One of the most common questions I get when meeting with clients is how much money will I need before I can retire? Unfortunately, there isn't a single answer to this question. It will depend on a range of factors, such as lifestyle needs, debt levels, plans to downsize or move and your investment strategy.
The ASFA
The Association of Superannuation Fund of Australia (ASFA) regularly benchmark the annual budget needed by Australians to fund either a comfortable or modest standard of living in the post-work years. ASFA update this benchmark quarterly.
Based on the ASFA December 2020 quarter a single person requires $28,179 p.a. and a couple require $40,739 p.a for a modest lifestyle or a single person requires $44,224 p.a. and a couple $62,562 p.a. for a comfortable lifestyle.*
ASFA state that a single person requires a lump sum of at least $545,000 and a couple would require at least $640,000 for a comfortable retirement.
In comparison the full age pension for a single person is $24,770 p.a. and $37,341 p.a. for a couple. The pension amount that an individual may actually receive can be lower or nil based on their assets and income.
Do you feel ready for retirement?
There are 4 areas I suggest people consider when looking at retirement.
1. Review super contributions
Making super contributions in the years leading up to retirement can make a significant difference to your lump sum. Personal super contributions are a tax effective way to save for your retirement as superannuation has a maximum tax rate of 15%.
2. Review investment choice
Superannuation is not an asset; it is a trust that holds your super investments. Most super funds offer a range of different assets to invest in. These range from conservative investments like cash and fixed interest, through to growth assets like shares and property. The assets you choose to invest in will depend on your appetite for risk. Being comfortable with your investment choice is important in the lead up to your retirement.
3. Prepare a budget
So how do these ASFA benchmark figures compare to people's current living expenses?
A budget is a very simple but powerful tool. I often say that you can't manage what you can’t measure. Preparing a budget will allow you to see how much you are currently spending to maintain your lifestyle and it can form the basis for determining whether you can afford to continue this lifestyle into and through retirement.
Remember that if you are 65 today, you could live for another 25 or 30 years. Are you able to afford your lifestyle for this long?
4. When will I be ready for retirement?
In my experience people often focus on reaching their retirement age but then do not think about what happens the day after. Work provides routine and structure, which is lost when you retire.
Some people can move into retirement with ease; others find the change very unsettling. I often talk about finding a 'new normal'. This might be volunteering, travel or spending time with the family. Whatever it is, take the time to think about it before you retire.
More information
Meeting with a financial planner can help you make sense of your retirement options and help develop a plan for your future. If you would like to make a time to catch up for an obligation free discussion, please contact me at [email protected] or via the Orange branch page.
*For more information on the ASFA retirement standard visit their website.