If you’re planning for retirement, you’re probably wondering if you’ll have enough saved to give up work and retire comfortably, especially with the rising cost of living affecting basic expenses like energy, insurance, food, and healthcare.

Fortunately, there’s already a guide available to help you plan. The Association of Superannuation Funds in Australia (ASFA) updates its Retirement Standard annually, offering a breakdown of expenses for two lifestyles: modest and comfortable. ⁱ

Based on our average life expectancy – for women it is just over 85 years and men 81 – if you are about to retire at age 67, you will have between 14 and 18 years in retirement, on average, depending on your gender. ⁱⁱ

ASFA found that a couple needs $46,944 a year to live a modest lifestyle and $72,148 to live a comfortable lifestyle. That’s equal to $902 a week and $1,387, respectively. The figure is, of course, lower for a single person—$32,666 for a modest lifestyle ($628 a week) or $51,278 ($986) for a comfortable lifestyle. ⁱⁱⁱ

What does that add up to? ASFA estimates that, for a modest lifestyle, a single person or a couple would need savings of $100,000 at retirement age. For a comfortable lifestyle, a single person would require $595,000 and a couple would need at least $690,000 at retirement age. ^iv

A modest lifestyle means being able to afford everyday expenses such as basic health insurance, communication, clothing, and household goods but not going overboard. The difference between a modest and a comfortable lifestyle can be significant. For example, there is no room in a modest budget to update a kitchen or a bathroom; similarly overseas holidays are not an option.

The rule of thumb for a comfortable retirement is an estimated 70 per cent of your current annual income. ^v (The reason you need less is that you no longer need to commute to work, and you don’t need to buy work clothes.)

Building your nest egg

So how can you build up a sufficient nest egg to provide for a comfortable life in retirement? There are three main sources: superannuation, pension, and investments/savings. Superannuation has the key advantage, due to the money in your pension being tax free in retirement.

Your superannuation pension can be augmented with the government’s Aged Pension either from the moment you retire or later when your original nest egg diminishes.

Your income and assets will be considered if you apply for the Age Pension, however, even if you receive a pension from your super fund, you may still be eligible for a part Age Pension. You may also be eligible for rent assistance and a Health Care Card, which provides concessions on medicines. ^vi

We understand that building wealth leading into retirement can be challenging. Our financial advisers can work with you to create a plan that will align with your goals and help grow your nest egg leading into retirement.

Money keeps growing

It’s also important to remember that the amount you accumulate up to retirement will still be generating an income, whether its rentals from investment properties or merely the growth in the value of your share investments and the accumulation of money from any dividends paid.

You can also continue to add to your superannuation by, for instance, selling your family home and downsizing, if you have lived in the home for more than 10 years.

If you are single, $300,000 can go into your super when you downsize and $600,000 if you are a couple. This figure is independent of any other superannuation caps. ^vii

Seek professional advice

Planning for a good life in retirement often requires just that – planning. If you would like to discuss how retirement will work for you, contact our financial advisers. Your adviser will discuss strategies and create a plan to help grow your wealth and build towards a fulfilling retirement.

Sources

i Retirement Standard – Association of Superannuation Funds of Australia 

ii Life expectancy, 2020 – 2022 | Australian Bureau of Statistics (abs.gov.au) 

iii https://www.superannuation.asn.au/media-release/retiree-budgets-continue-to-face-significant-cost-pressures

iv https://www.superannuation.asn.au/resources/retirement-standard/

v https://www.gesb.wa.gov.au/members/retirement/how-retirement-works/cost-of-living-in-retirement

vi Assets test for Age Pension – Age Pension – Services Australia

vii Downsizer super contributions | Australian Taxation Office (ato.gov.au)

As we welcome the new year, it’s the perfect time to reflect on our financial goals and explore essential financial tips for the new year to ensure we’re on the right track. This article is not only a timely reminder for you but also a valuable guide to share with your children, friends, or anyone who doesn’t yet work with a financial adviser. These practical tips offer a solid foundation for making smart financial decisions and setting up a successful year ahead.

Set clear financial goals

Financial planning begins with goal setting: short-term, mid-term, and long-term goals. Short-term goals might include creating a spending plan, reducing debt, and building an emergency fund. Medium-term goals may address insurance coverage and further debt reduction, while long-term goals focus on long-term financial health.

Start by identifying what you want to achieve financially this year. Be specific about your goals, whether it’s saving for a house deposit, paying off a credit card, or building an emergency fund. Use the S.M.A.R.T framework to make your goals Specific, Measurable, Achievable, Relevant, and Time-bound. Break these goals into smaller, measurable steps and set a timeline to keep yourself accountable.

Create a spending plan

A spending plan is a cornerstone of financial success. Track your income and expenses to understand where your money is going. Categorise your spending into needs, wants, and savings, and allocate your income accordingly. Tools like spending plan apps or spreadsheets can make this process more manageable.

When creating your spending plan, consider:

• Fixed vs. Variable Expenses: Identify fixed expenses like rent and utilities, as well as variable ones such as groceries and entertainment.
• Debt Repayment: Allocate a portion of your income to pay down high-interest debt.
• Savings Goals: Include savings as a non-negotiable expense in your spending plan.
• Lifestyle Adjustments: Look for areas where you can reduce spending without sacrificing your quality of life, like dining out less often or finding cheaper alternatives for daily expenses.

Revisit your spending plan regularly to adjust for changes in income or expenses. Flexibility is key to staying on track.

Build an emergency fund

Life is unpredictable, and having a financial safety net can save you from unnecessary stress. What will you do if you encounter an unexpected expense or loss of income? Having money set aside can help you create a financial safety net, and knowing it’s there can do wonders for your peace of mind. Aim to save three to six months’ worth of living expenses.

Start small by creating short-term savings goals and practice saving money every week or month. Put the funds in a separate savings account, and soon enough, you’ll see you’re making progress. For a longer-term goal, aim to have at least three months’ worth of living expenses saved in your emergency account. Make saving even easier by automatically paying yourself first with direct deposit or automatic transfer. Every little bit helps.

Invest in your financial education

The more you know about managing money, the better equipped you’ll be to make informed decisions. Take the time to read books, listen to podcasts, or attend workshops on personal finance. Understanding concepts like compound interest, investment options, and tax strategies can have a significant impact on your long-term wealth. Financial literacy empowers you to take control of your financial future and avoid common pitfalls, such as falling into high-interest debt or making poorly informed investment choices.

Make learning engaging and relevant by focusing on areas that align with your goals. For instance, if you’re planning to buy a property, learn about mortgages and property market trends. If retirement planning is a priority, delve into superannuation strategies and long-term investment vehicles. Additionally, consider joining online forums or groups where you can exchange ideas and learn from others’ experiences.

Work with a financial adviser to create, review, and adjust your plan

Achieving financial success isn’t a one-time effort—it’s an ongoing process that requires regular reviews and adjustments. Your financial adviser provides valuable insights and ensures your financial plan stays aligned with your evolving life circumstances and goals.

Your financial adviser helps you implement your strategy, review your progress, and make informed decisions when changes are needed. Our check-ins allow you to identify new opportunities, avoid potential pitfalls, and stay on track toward your objectives.

Achieving financial success in the new year doesn’t have to be overwhelming. Make this year your most financially successful yet!

Happy New Year!