How much do I need to retire?

Your retirement plan will often be determined by whether you can afford to stop working – and still have enough income to maintain your lifestyle.

Latest figures from the Australian Bureau of Statistics show some interesting things.

The majority of men (36%) and women (22%) chose to retire at the time when they became eligible to draw on their superannuation and/or the age pension.

And their average age at retirement was 63.5 years.

So, you’re planning to delay retirement until your super balance reaches an amount you can comfortably live on. But, how do you determine what that target should be?

There are a number of factors that will affect how far your money will go. This includes life expectancy, how your money is invested and other choices you make for managing your income.

But one of the most important steps to planning for a secure future in retirement is to be realistic about your costs.


How your living costs might change

As you stop working and have more time to yourself, your routine will change. You might save on some costs as a result.

Spending on transport could fall as you no longer have to commute. Buying lunch and coffees could lead to significant savings if left out of your retirement routine.

Other expenses, such as buying groceries and clothes are likely to be much the same.

Thinking about how you’ll spend time in retirement will give you clues about how your spending might change.

If a few trips overseas are on the cards, you’ll need to allow for these costs in your overall budget.

But if you’re planning to limit travel to domestic holidays only, then you won’t need to allow for these expenses in your financial plan.


Start with a ballpark estimate

How much travel you plan to be doing is just one of the many costs taken into account in the Retirement Standard estimates for annual expenses.

Updated every quarter by the Association of Superannuation Funds of Australia (ASFA), these figures can give you a rough idea of what you can expect to be spending in retirement.

There are two estimates available, a higher one for a comfortable lifestyle and a lower amount for a modest lifestyle.

As at December 2018, the amount you’d spend as a single person aged around 65 years enjoying a comfortable lifestyle is $43,317. For a modest lifestyle the annual budget is $27,648. The estimate for couples is $60,977 and $39,775 for comfortable and modest lifestyles respectively.

A couple living modestly can expect to spend approximately $2,500, with no allowance for overseas trips.

On a comfortable budget, a couple can splash out more than $5,000 each year on travel, with roughly a third going towards international travel.


The cost of lifestyle changes

It’s wise to build a budget based on what you expect to be doing in early retirement. However, your overall plan should also take into account potential for lifestyle changes as you age.

Travelling for longer periods, dining out and entertainment and taking part in hobbies could taper off as you grow older.

Health and aged care costs, on the other hand, could make up a larger share of your budget in later years.


A plan to see you through retirement

Your expenses are just one side of the whole budget planning process.

Looking at your retirement income options is just as important to figuring out how much you’ll need to take the leap.

There are many ways to support yourself financially towards having the lifestyle you want. From the age pension, to the equity in your home, to retirement income products such as account based pensions.

A qualified professional who specialises in retirement planning can support you in exploring these opportunities to manage your income for your whole retirement so you can make better choices for a secure financial future.


Source: FPA Money and Life, 02 April 2019


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