How much do you need to retire?
Have you found the right answer to this question?
If you have been given an answer, are you happy with it? Do you understand it?
Are you someone that no matter how financially well supported you may be, you may choose a frugal lifestyle and likely die with a lot of money, like the CSIRO study found in 2016. This is great for your kids (or your cat). Will it be that great for you?
Or you may be feeling pretty secure and be getting on with a very comfortable retirement as found in the Grattan Institute study of last year.
Where do you fit?
I think with retirement planning, it is a case of putting in the work to make the best plan you can, then checking in periodically to make adjustments as the situation changes. And situations will definitely change.
In this article I will take you through some available tools to help get a bit closer to answering this question.
A simplified (and useful) start to understanding your spending over a lifetime
To get started with a plan for lifetime spending, you will need to take into account investment earnings, Age Pension eligibility and the expected cost of living over a lifetime.
There are some publicly available tools to help you get started.
The government sponsored Moneysmart Retirement Planner (MRP) takes retirement savings and works out how much spending can be supported based on lifespan. There are a bunch of variables that can be changed - the default settings should be a good start.
The ASFA Retirement Standard is the go to benchmark for the likely spending of Australians in later life. The result of a detailed study of the spending of older Australians, the ASFA Retirement Standard delivers an annual spending rate to deliver a “modest” and “comfortable” standard of living.
Put the two together - and you get a starting number for how much is required for a comfortable retirement. The ASFA SuperGuru website suggests a couple will need $640k at retirement to spend at the “comfortable” rate of $61k per year over a lifetime. Assets are run to zero by age 90. For a single Australian the number is $545k to fund a comfortable lifestyle at $43.3k per year.
The great thing about these tools is that you can start with your own numbers, and work out what kind of spending can be supported over time, taking into account how long you want the money to last and what kind of investment return you are expecting.
So there it is - to retire comfortably, a couple needs $640k at retirement, and a single $545k.
Is that it?
Of course not.
There are many variables. You may not have that amount saved. You may have plenty more.
And who expects lifestyle costs to be the same for every Australian? Costs will vary significantly.
Also - these tools expect spending at a constant rate throughout life. This is unlikely.
For example, aged care costs can be a surprise to many. I like to keep a close look at what is liquid and available when my clients get to their early to mid 80’s. Couples should have a close eye on local Refundable Accommodation Deposits , and an understanding of the cashflows that may be associated with a sudden need for residential aged care.
I am also expecting the government’s Pension Loans Scheme to become an important component of lifetime spending. A government sponsored reverse mortgage scheme could be just the ticket for helping Australian home owners in later life manage their money.
My lifetime spending models incorporate the Pension Loans Scheme - and I think the government will eventually provide tools to help Australians in later life plan their spending. They should.
And of course, there is the challenge of making sure you are making the most of what the government has put aside for you as an Australian in later life. Whether this is the 40 + programs accessible via the Pensioner Concession Card, or the support of the Commonwealth Seniors Health Card. This is an administrative challenge few expect when they start their retirement.
The importance of careful planning
For Australians in later life, planning spending, and taking into account government support is enormously complicated.
While simplified models like the MoneySmart Retirement Planner help guide the spending decisions of Australians in later life, allocating spending over a lifetime is complex, and the implications of mismanaging the drawdown of savings can be incredibly stressful at a vulnerable stage in life.
It helps to have someone to work with that has a thorough understanding of the systems that Australians in later life have to be a part of.
Planning lifetime spending is a big part of how Later Life Advice works best with retiree Australians making plans.
Are you being looked after? Is this the service you are getting now? Is your adviser talking about your plans, or their product?
0412 181 031