It could be fair to say that many Australians aspire to at least a "comfortable" retirement. Do you know what annual income will provide "comfortable" by your standards? How much does that mean you'll need at retirement?
To enjoy a "comfortable" retirement, singles at retirement (aged 65) will need $545,000 in savings, to generate a yearly income of $43,372. Similarly, couples at retirement will need $640,000 to generate $59,619 a year. The figures in both cases assume that the retiree(s) own their own home, and do not pay rent or make mortgage payments. That's according to the ASFA Retirement Standard for the September quarter 2016.
A "comfortable" retirement means you can go on one annual holiday in Australia, you can eat out regularly and afford bottled wine, according to ASFA. See what else a comfortable retirement means. Checking this list, you might find your definition of "comfortable" matches or, maybe not.
If the lump sum doesn’t work for you
BT Financial Group’s Head of Workplace Super Matt Englund acknowledges that ASFA’s lump sum figure is a great start – but ultimately it’s about the individual and the lifestyle they want to lead.
"A comfortable retirement has different constructs for different individuals," Englund says. "I’ve got four kids and I know that even when I’m retired, my wife and I collectively will want to help fund our kids’ lifestyles but our needs might be different to somebody else’s."
You may want to take up a new hobby, or have an annual Christmas holiday on the Sunshine Coast. While someone else might prefer to go skiing overseas twice a year.
It’s about estimating the lifestyle you’ll want and what kind of income that equates to annually, combined with your expectation for how many years you’ll live. That can then be converted to a dollar amount.
Start early and invest in yourself
A good tip to consider for achieving "comfortable" in your retirement? Start contributing when you're young and you could reap the rewards of compound interest.
"Compound interest is one of the seven wonders of the financial world," says Englund. "Put a little money away every week and it could grow. The fact that your interest earns interest over time is a wonderful thing."
In theory, it should be easier to put extra money into super when you’re young. You’re likely to have fewer financial commitments (e.g. mortgages and children) and are less likely to have to leave the workforce to look after children.
"What you do encounter though," Englund says, "is a desire for a greater level of freedom and lifestyle. Often when you’re younger it’s the first time you’ve started earning a reasonable disposable income, and you want to go and play! The opportunity to have a better data plan for your mobile phone or to go out to restaurants with friends or live in better accommodation or have more holidays, often takes precedence" says Englund.
Already 50 – and not feeling "comfortable"? It’s never too late to get started
If you’re older and not where you want to be in the quest for a comfortable retirement, it’s not too late. Englund suggests four steps to take action:
- Get yourself well educated around your choices and potential strategies, whether through material available from BT or in the marketplace. You might like to start by looking at the BT Retirement calculator to see the potential impact that additional contributions could have on your super balance over time. A transition-to-retirement strategy for instance could also potentially enable you to put additional money into the tax-advantaged environment of superannuation1.
- Look at your current lifestyle and see if there are any trade-offs you could make that allow some of today’s disposable income to be placed towards tomorrow’s savings*.
- Depending on what you can afford, limited advice or some more holistic or comprehensive advice through a financial advice professional can really benefit individuals. You may look for a one-off piece of advice rather than a long-term relationship, depending on your situation. Though at 50 for instance, you’ve probably still got 10 to 15 years of work left, so you may wish to consider to establishing a longer-term relationship.
- Think about your retirement not as just what you’ve got in your superannuation, but the value of all your assets which can help fund your lifestyle in retirement. Sure, super is crucial, and the retirement assets you build up in super are tax advantaged1 but they’re not the only assets you could be thinking about.
Time to get moving
Overall, Englund believes that Australians aren’t thinking all that hard about what is required to finance their retirement. What would be useful is to spend more time considering the way they want to lead their retirement.
"Do they want to work part time, have they got care responsibilities, will they assist ageing parents? And by consequence think about the income required to do those things and work backwards for the capital value."
"It certainly will be a challenge for some, but breaking it down into manageable steps means it may not be as daunting" says Englund.
1. A 15% tax rate applies to earnings in superannuation funds. It also applies to pre-tax (concessional) contributions made to your superannuation, however higher income earners may also have an additional 15% tax rate applied. This is compared to your marginal tax rate. You can find out more at www.ato.gov.au.
This information is current as at 25/02/2017.
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
Superannuation is a long-term investment. The government has placed restrictions on when you can access your preserved benefits.
The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. In addition, the government has set a non-concessional contributions cap. For more detail, speak with a financial adviser or visit the ATO website.
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