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Planning for the retirement you want

Living the retirement lifestyle you want takes careful planning. And while everyone’s ideal retirement is unique - and could involve a sea or tree change, travel and time dedicated to hobbies - most of us want to continue with the standard of living we enjoy during our working years. Whatever your ideal retirement lifestyle looks like, to make it a reality, you need to start planning now.

Working out your retirement plan

To turn most dreams into reality you need to implement a plan and retirement is no different. The first step is to define - in as much detail as possible - the lifestyle you want to live and how much each element of it will cost. Be bold! Remember, if it’s not in your plan, it won’t be budgeted for.

Start with the retirement basics

To help you define what retirement will look like for you, it’s important to understand what income you will need and what income sources might be available to help you achieve this.

Calculating what you will need

The annual income you’ll need in retirement will depend on what sort of lifestyle you want. Replacing your car every five years and taking overseas holidays costs more than road trips around Australia and sticking with the car you’ve got, so make the time to do an honest budget for the lifestyle that suits you.

For your retirement budget, you’ll need to remember that what you spend your money on today might change in retirement. Your work expenses will dramatically reduce or disappear, but you may spend more on things like medical costs, travelling and hobbies. To help determine your retirement income needs, use our Budget planner.

Budget planner

A modest vs comfortable lifestyle

$34,911 p.a. for a modest retirement

$60,063 p.a. for a comfortable retirement

The Association of Superannuation Funds of Australia (ASFA) provides rough estimates of the cost of retirement. They’re a useful starting point for deciding if you’re likely to reach the retirement income you need to fund the lifestyle you want.

In September 2017, ASFA estimated that a single person retiring today will need around $24,506 a year for a modest retirement and $44,011 a year for a more comfortable retirement. For couples, they calculated $35,189 and $60,457 a year respectively.1

How long you may need to fund retirement

With healthcare and standards of living improving, someone retiring today can expect to live 20, 30 or more years in retirement. Life expectancy estimates the average time people of a particular age may live. For example, at age 65, it is 19 years for men and 22 for women. But 60% of people will live longer than life expectancy2. This means it’s a good idea to assume your retirement savings will need to last well past life expectancy. To find out how long your retirement savings may need to last, use our life expectancy table.

Life expectancy table

Using your super to generate an income

When you have reached your preservation age, you can use some or all of your super to commence a pension and generate a regular income each year. A super pension is a flexible solution for your retirement as it allows you to choose how your money is invested and how much income you want to receive within Government prescribed limits. There are generally two types of super pensions, depending on your age and work status:

  • If you’re under age 65 and still working you can commence a transition to retirement (TTR) pension. In a TTR pension the investment earnings are taxed at up to 15% (the same as super) and the annual income you receive is restricted to between 4% and 10% of your account balance. This type of pension can help you to reduce your working hours and ease yourself into retirement; or
  • Once you’ve retired or have reached age 65 you can commence an account based pension. This is more favourable than a TTR pension as the investment earnings are tax-free and, although you’re still required to receive a minimum amount of annual income, there is no maximum limit as to how much you can withdraw each year. The above benefits will also apply to a TTR pension once a condition of release is met.

Regardless of which type of super pension you commence, the income payments you receive are concessionally taxed before age 60 and are tax-fee once you reach age 60.

 


 

Possible government assistance

Depending on your income and assets, you may also receive a full or part Age Pension from the Australian Government. This can be extremely helpful as it provides you with an additional income source and means you don’t need to draw down as much from your own savings to meet your required income needs each year. To qualify for the Age Pension, you’ll need to be 65.5 or older and have income and assessable assets below certain thresholds. As of 20 March 2018, the maximum you could receive is $23,597 a year for singles, and $35,573 per year for couples (combined) including supplements. You can find out more from the Department of Human Services.

Will you have enough?

The Retirement planner on the Australian Government’s MoneySmart website gives you an estimate of what your retirement income is likely to be. It takes into account your superannuation savings (to be drawn down as an account-based pension) and any Age Pension entitlements you might receive.

By comparing your estimated income from the Retirement planner to your required income to fund the lifestyle you want in retirement, you can determine if you’re on track or whether you need to make changes to improve your position.

Options to improve your situation

If you need to increase your wealth inside or outside super to generate a higher ongoing income in retirement, there are a number of things you can do, including:

  • increasing your super contributions
  • reviewing your investment strategy
  • retiring later
  • working part-time in retirement.

It’s never too late to build your retirement savings. Remember, your personal circumstances are unique, so it’s a good idea to talk things over with a financial adviser before committing to a change of strategy.

1 https://www.superannuation.asn.au/resources/retirement-standard.

2 Australian Government Actuary Australian Life Tables 2010-12

General advice and information only

Any advice and information on this website is general only, and has been prepared without taking into account your particular circumstances and needs. Before acting on any advice on this website you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.

General advice and information only

Any advice and information on this website is general only, and has been prepared without taking into account your particular circumstances and needs. Before acting on any advice on this website you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.

General advice and information only

Any advice and information on this website is general only, and has been prepared without taking into account your particular circumstances and needs. Before acting on any advice on this website you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.

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