'How much do I need to retire' isn't as easy to answer as you think
Analaura Luna
Will you be able to afford the retirement you want? When most people think of financial planning, retirement is usually at the bottom of the list, but there are some things you need to do today to make sure you get that great retirement in the future!
‘How much do I need to retire?’ is a question that many people struggle to find an answer to. And when it comes to listing the biggest challenges of financial planning, retirement is pretty high on the list. The reason for this is because there are just so many variables to take into consideration. Are you prepared for one of the biggest challenges of financial planning – retirement?
Back in 1967, When Sir Paul McCartney first asked whether we’d still need him and feed him when he was 64, and since the average life expectancy back then was 70, it’s easy to see how this would have been considered to be ‘elderly’. But nowadays, 64-year-olds haven’t even reached retirement age is three years short of the retirement age and most Australians can expect to live to 80 and beyond. Nobody’s complaining about the increased life expectancy, but it does change the way we need to think about our retirement. Sixty-four isn’t old anymore and when you retire there will probably be a lot of things you’ll want to do. So it’s important to make sure you have enough money to accomplish it all.
What about the pension? Won’t that provide for you when you retire? It’s there, certainly, but it’s a risky thing to rely on. As the population ages the financial burden on the budget increases, and the government has already taken steps to reduce it by raising the retirement age. Do you want to bet your future on a benefit you might not be entitled to when you need it? And even if you are eligible to receive the pension, will it give you enough to live on? The current benefit for a couple is about $475 per week. The March 2008 release of the Westpac-ASFA Retirement Standard reported that a retired couple would need about $516 per week just to maintain a ‘modest’ lifestyle – which doesn’t allow for much in the way of eating out, or social activities, or well, anything really. As you can see, the pension allowance is below that figure. We’ve all heard the horror stories about elderly people living on cat food and we can probably all agree that these aren't the kind of financial budgeting decisions anybody wants to make during their retirement.
With these figures in mind, becoming a self-funded retiree looks like a much more attractive option. Superannuation is one of the easiest ways to build wealth for your retirement. It’s tax effective because all superannuation earnings are taxed at a flat rate of 15 per cent, and there are government co-contributions and salary sacrifice options to act as investment incentives. A sound superannuation strategy can provide you with the retirement lifestyle of your dreams so if you haven’t got one in place, it’s time to get started. Make some decisions about the kind of life you’re going to want when you stop working and when you discuss how much you’re going to need to contribute to your fund with your financial adviser, make certain everybody is on the same page. Most advisers will try to build a fund that will allow a couple to live a comfortable lifestyle, but everybody’s idea of ‘comfortable’ is different. The Beatles sang about knitting by the fireside, which might meet somebody’s definition of ‘comfortable’ – but you might feel that you can’t begin to call yourself comfortable until you’re cruising the Bahamas on a luxury yacht. Whatever your idea of comfortable is, don’t you want to make sure you have enough money to make it happen?
Start by finding out how big your retirement fund will need to by asking yourself ‘How much do I need to retire?’ – but don’t aim to just retire, aim to retire to the lifestyle you’ve always wanted. Brace yourself, because when you first see how much you’re going to need to save for the future you want, it might be a bit of a shock. But if you think about it logically you don’t need to come up with all that money today. With any luck you’ve started sorting out your retirement investments and have decades left to keep building your wealth, and the good news is that even if you’re a bit further behind than you’d like to be at the moment, it’s not too late to implement some solid strategies for boosting your retirement investments. As long as you contribute regularly to your fund over the years the miracle of compound interest will help it grow to a very respectable size. And give the salary sacrifice option serious consideration – not only will it boost your nest egg, it can have some attractive tax benefits that will help you right now.
Retirement shouldn’t be something we fear and it definitely shouldn’t be a time that we have to spend worrying about making ends meet instead of doing all the things that make life worth living – get planning today, so you can be confident that you’ll have a retirement that’s definitely worth making a song and dance about!
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Tags: how much do I need to retire, financial planning retirement, financial budgeting, retirement investments
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Analaura Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration.
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