Deep down we all want to know the answer to this burning question in the quest to find out how long we have to keep working for… how much do I need to retire? I get asked this all the time. You know the months of November through to February are usually my peak retirement planning times. People start to get tired as Christmas approaches and the glistening light at the end of the tunnel starts to beckon. Or conversely they’ve had an amazing 3 weeks off over the Christmas period and their lust for the job has seriously worn off by the time they return, sending them straight to the financial planners office in mid-late January for a health check of their retirement position.
The worst thing about this is that I am more often asked this question by people who are already in their 60’s, and less by people in their 30’s and 40’s which is the best time to actually start giving it a little thought and attention. Even your early 50’s is fine by me – in a decade we can do some amazing things when the goal is clear.
So what kind of life do you want to lead in retirement? How long are you going to live (sorry, trick question)? I’m sure nobody desires just a basic existence in retirement, i.e. thinking of whittling away their last 20 or so years at home with no money for hobbies or travel and leaving the heating and cooling off because the electricity is too expensive. But I’ll give you the two extremes for consideration.
Basic Retirement (Couple) – Essentially this is slightly more than a full Age Pension and roughly $36,000 a year in today’s dollars. This is enough to cover your basic necessities like the power bill, water, gas, basic groceries, basic clothing, petrol for around town, and roughly $150 a week for all your “fun stuff” like local travel, dining out, wine/beer and Netflix. If your appliances break down, hopefully it’s no more than $130 a year because that’s all you have on average, in addition to $1000 a year for home repairs and maintenance. You are unlikely to have much set aside for any major home improvements or renovations, international travel is unlikely unless funded by a rich friend, or sadly vehicle upgrades when your 20 year old hatchback starts to give up the ghost.
Basic Retirement these days is often the result of unstable employment over the years, poor health (combined with lack of insurance), death of a spouse, loss of assets through divorce and financial separation, or very poor financial management. This may also include those who have immigrated to Australia with little in the way of assets and therefore had less time to get their financial house in order.
Superannuation was introduced in 1991 to provide us with more than a basic retirement and make us less reliant on the tax payer funded Age Pension. Self-employed people don’t have to contribute to superannuation and sadly I see quite a few self-employed people with tiny superannuation balances who are very unprepared for retirement.
By stark contrast, many people would actually prefer the Aspirational Retirement. Whether or not they get there is purely a matter of how much planning goes into it, how early the planning starts, and then the action or inaction of those plans. Aspirational Retirement looks a bit different for each person because it is relative to what your lifestyle during your working life looks like. So I’m going to pick an example on the higher side. Let’s say it’s a couple who are the same age, both 47, and they are earning $250,000 between them. Life has been pretty kind to them and their kids have all left the nest and they’ve managed to get the mortgage well and truly under control. For them, living their current active lifestyle may cost $120,000 and includes international travel, regular domestic travel and no need to follow a strict budget. In addition to the $120K, they regularly update their vehicles, renovate their home’s bathrooms and kitchen and like to be able to lend the kids some money if needed.
This couple are going to need at least $100,000 a year to live a similar lifestyle in retirement and a reasonable nest egg to also allow for the vehicle upgrades, maybe some large overseas trips, if they want to do a few years caravanning around Australia there is also the $50-150K for their desired home on wheels. They have lots of time up their sleeve, but what if they don’t want to work until they are 65. What if they want to retire in their late 50’s? They better get on with their plans because they are going to be self-funded retirees and likely to require somewhere in the vicinity of $1,500,000+ depending on their appetite for investment risk and prevailing investment returns & interest rates.
If that has just given you an aspirational heart attack, you needn’t be too concerned. You may need much less than the Aspirational example I’ve just provided. However, you should start thinking about what your ideal retirement looks like and start to plan accordingly. There are so many factors and strategies that go into planning a retirement, and professional help from a fee for service financial planner can take some of the stress off you. Unless you want to spend half of your spare time reading up on superannuation legislation, learning economics, comparing investment products and figuring out how to perform amazing projections on an excel spreadsheet, this is the stuff that we lifestyle financial planners live and breathe every day. We love to help our clients track their progress, adjust their strategies as their course in life deviates, but ultimately achieve their goals.
So dream about it and get clear on what you want. Set some goals. You can always work longer if you choose to, or spend less money in retirement because you are happy to, but it never hurts to have saved too much for retirement. I never had a retiree say to me, Oh I just hate having this extra $500,000 weighing me down, and seriously do you know any good ways to blow this spare $25,000 a year I keep getting in my bank account.
Ohhh blissful retirement. There you are. And you look amazing.
Shonel x
p.s. I love my job and I’m not retiring any time soon.
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Unless specifically indicated, the information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek personal advice from a financial adviser.
Shonel Vuletich is an authorised representative of Synchron, AFS Licence No. 243313.
The Business of Life 