How to work out your retirement number
The amount of money needed for retirement is not one size fits all. How you’d like to spend your retirement is as unique as you. From the big life changing goals, to the smaller, more personal ones that give your life meaning.
There’s no defined age you must retire by, and it isn’t just about your finances. Your state of mind, where you’d like to live, how you spend your time as well as your goals, all play a big part.
Living well in retirement
Australia has one of the highest life expectancies in the world, and it’s likely to increase well into the 90s over the next 40 years.i Meaning you could be looking at around 30 years in retirement.
So whatever your retirement goals are (like travelling, having a sea change, caring for family or working part-time), it’s important to be prepared financially.
The cost of living in retirement
Assuming you own your own home, recent research shows that to retire comfortably, couples will need about $640,000 as a lump sum to retire on.ii Yet, a recent survey by Roy Morgan shows many Australians aged 50-64 may not have the amount they need to retire comfortably at 65, and in fact many may still be in debt.iii
It can be easy to feel overwhelmed by these figures, but your finances may actually be in better shape than you think.
What you can do yourself, right now
There are a number of things you can do yourself now, that can really make a difference to your future retirement – both financially and mentally. That includes thinking about how you’d like to manage your income and lifestyle to reflect your changing needs. Here are some ways to get started:
1. Get clear on your retirement goals and how you’d like your life to look
Too many options can make planning difficult, so it’s good to get a clear idea about the lifestyle you want and the top things on your list, including:
– knowing how you want to spend your time
– if you have a partner, comparing lists, so you’re on the same page
– working out where you want to live.
2. Work on simplifying your finances
It’s a great idea to get your finances organised sooner rather than later. Some of the things you can work on now include:
– tracking your spending
– working out where you can make savings
– getting your super sorted
– taking advantage of any government incentives you may be entitled to.
Other tips and information are also available on www.amp.com.au/retireright and www.moneysmart.gov.au.
3. Think about your numbers
Have a realistic look at how you can achieve your goals, and live the lifestyle you’d like within your budget. You may need to reassess some things in favour of others, or be stricter on the smaller things (like eating out) so you can enjoy bigger things in retirement (like a holiday).
4. Put a plan in place to help achieve your retirement goals
Once you’re clear on your goals, a plan will help you step out how you’ll get there. It can make all the difference.
5. Talk to us
Most of us need some help to create a plan for our retirement goals. And making the most of your super, investments, government entitlements and incentives can be hard to do on your own.
We can help you explore the cost of your retirement goals and work out what your retirement number might be, including helping you:
– Work out how much you’ll need to live on
– Work out how you could create an income in retirement
– Understand possible future expenses
– Examine your superannuation savings, planning for now and in retirement
– Understand your living options, including aged care and what it could mean for your finances
– Find ways to keep doing the things you love, and new things you’d like to do
– Understand the rules around age pension eligibility.
After all, understanding all your options, and having a clear plan for your future, really can help you step into your idea of retirement with confidence.
i Australian Government Treasury Department., 2015 Intergenerational report. https://treasury.gov.au/publication/2015-intergenerational-report/chapter-1-how-will-australia-change-over-the-next-40-years/
ii ASFA, Retirement Standard Summary, December 2016. The lump sums required for a comfortable retirement assume that the retiree/s will draw down all their capital, and receive a part Age Pension. All figures in today’s dollars using 2.75% AWE as a deflator and an assumed investment earning rate of 6%. They are based on the means test for the Age Pension in effect from 1 January 2017.
iii Roy Morgan Research, State of the Nation Australia spotlight on finance risk, August 2016.
© AMP Life Limited. First published January 2018