Most people when thinking about retirement ask ‘How much capital in super to I need?’
This is a fair question but the wrong questions to start with.
The first question is, how much income do we need to live and meet my retirement lifestyle goals?
The following is a simple process to follow to help prepare for retirement.
Your retirement plan can be simple or detailed and should include:
Timing — when you want to retire. This could change, but it’s good to have a starting point.
Lifestyle and priorities — prioritise what matters most. For example, social activities and staying active, continuing or changing work, where you will live.
Income and living costs — estimate your daily living costs. Do a budget to prioritise your spending. Work out how much income you’ll have, and from where.
Plan for the future — if you can, boost your retirement income by contributing more to your super. Decide how to pay off your mortgage or other debts and build a savings buffer. Check you have an up-to-date will and powers of attorney.
Think about when you want to retire as there is no set age you need to be to retire. It will depend on your health, work options, finances and personal situation.
Are you retiring in ten years, two to five years, or next year? If you have a partner, when will they retire? Knowing how much time you have helps you make a retirement plan.
Talk about your retirement priorities with a partner, colleague or friend. If you need professional advice to plan for retirement, see financial advice.
Consider your lifestyle and priorities
Think about what your lifestyle will look and feel like. What are the things that matter most?
Consider:
- Your living costs
- Social life and recreation
- Staying active and healthy
- Volunteering or community participation
- Planning for changing health needs or aged care
- Supporting your family, children or grandchildren (if any)
Keep working, reduce hours or retain
Continuing to earn an income, even part-time, can help your retirement savings last longer. If you want to keep working, options include:
- Job Switch — explore options to retrain or seek part-time work.
- Transition to retirement — if you’ve reached your preservation age you can use some of, and keep contributing to, your super while working.
- Work Bonus — if you get the Age Pension, you can earn up to $300 per fortnight from work before your pension payment reduces.
Plan where you will live
If you own your home:
- If you still have a mortgage, you could use some of your super (when available) to pay it off.
- Consider downsizing to free up money. You could pay off your mortgage, support your lifestyle, or relocate to be closer to family or services. Before going ahead, check the tax impact and whether it will affect your government benefits.
If you’re renting:
- You may be eligible for an extra payment if you rent and get payments from Centrelink, like the Age Pension. To find out more, see rent assistance on the Services Australia website.
- If you’re struggling with rent or unsure about your tenancy rights, see rent steps to take on the National Debt Helpline website.
Work out your income and living costs
How much money you’ll need for living costs in retirement depends on your lifestyle priorities and what you can afford.
For most people, your retirement income will be a combination of superannuation and the Age Pension. If you don’t have much super, you may be more reliant on the pension. If you do have super, think about how and when to withdraw it. You may also have some savings or investments.
Consider your living costs
Housing — rent or mortgage, rates, home and contents insurance, maintenance
Utilities — electricity, gas, water, phone, internet, streaming services
Food — fresh food, groceries, takeaway, dining out
Clothing and household goods — clothing, personal care, furniture, household appliances
Health and leisure — health insurance, health care, social activities, fitness, holidays, gifts
Transport — car registration, insurance and running costs, public transport
As a rule of thumb, try allowing for two thirds of your current living costs. This is a useful guide, that assumes reduced costs for work and that you’ve paid off your mortgage.
Your spending may be higher when you first retire. For example, if you plan to travel or update your home. You may also need to allow more for health care as you get older.
If you are considering retiring or want to start the planning process, please feel free to give us a call to arrange a time to meet so that we can discuss your particular requirements and circumstances in more detail.
