Aug 13, 2017

Our Insights...

One of the biggest questions people worry about is this: will I have enough money when I retire?

There comes a point in everybody’s lives when they must consider stepping away from the working world. It’s just a fact of aging. At that point in time, you want to make sure you have enough wealth to see you through for the rest of your life.

A retirement or superannuation fund helps you do just that.

But how much money in your super is enough?

The following factors will help you set a reasonable goal.

Responsible Super Use

For your super fund to do you any good, you first need to understand how it works.

Don’t assume that your employer’s contributions are enough. Remember that you’ll have to maintain it and keep track of what’s in there. You may also have some tax obligations attached to your super fund.

If you aren’t sure about properly managing or checking up on your super, you need to talk with an expert financial adviser. This will also determine the need for you to supplement your fund with other savings and investment strategies. Take good care of your super, and it will take good care of you all throughout your retirement!

Know Your Needs

Retirement is not the same experience for everyone. People have different goals and priorities when it comes to enjoying life after a career. To successfully save up for your retirement, you need to consider at least three things:

  • How long you plan your retirement to be (the age you plan to retire until 85-90 years of age)

  • Your health condition (do you expect any major medical bills to turn up during your retirement?)

  • The standard of living you wish to maintain (can you afford to maintain your current lifestyle or even a better one?)

Once you have a handle on these factors, you can start crunching numbers.

How Much Are We Talking Here?

Because everyone has different needs in retirement, it’s hard to pinpoint an exact monetary amount.

But considering the factors listed above, you can work out a rough budget.

As a rule of thumb, you can assume that about two-thirds of what you earn now should be set aside if you wish to maintain your current standard of living well into retirement.

Here’s another calculation to help you get an idea.

According to the Association of Superannuation Funds of Australia’s Retirement Standard, to have a “comfortable” retirement, single people are expected to need around $40,000 per year. For couples, that figure is closer to $60,000.

Remember, that’s per year.

Let’s say you retire at age 65 and expect to live until age 85. That’s 20 years at $40,000 a year. $60,000 if you’re married. This is a range of $800,000 to $1.2 million that you would need in your super fund to enjoy a “comfortable” retirement. Sounds steep, right?

Granted, this figure varies by individual circumstances and priorities. For one thing, this calculation is assuming that you already own your own home.

A “comfortable” retirement is considered to be one that includes the following:

  • Eating out regularly at nice restaurants

  • Buying nice new clothes on a regular basis

  • Having private insurance

  • Taking frequent holidays

  • Purchasing the latest in electronics and equipment for your home

So if you prefer a more modest living that leaves out certain “luxuries”, then you can expect to need less in your super fund. Saving for your super is doable!

Plan For The Unexpected

Even if you think that you won’t need much to live on in retirement doesn’t mean you don’t need to worry about it.

As you calculate your needs, leave room for changes in the economy. A rise in the cost of basic things like food, fuel, utilities and rent could suddenly have your savings stretched out too thin. So don’t map out your budget based on today’s prices, alone. Leave plenty extra to accommodate unpleasant changes.

There’s also your health to think about.

Retirement is a great time to start up new healthy habits. But you can’t reverse the aging factor. There may come a point when you need assisted living arrangements or major surgery. Starting now, saving up in your super fund will help prepare you for such expenses later on.

Other Ways To Save

Did that figure of $1.2 million mentioned earlier send you into a panic?

You will likely be very dependent on your super fund to save for retirement. But that doesn’t have to be your only option. Especially when saving up a million dollars sounds impossible!

Start now by working on your budgeting skills. What you save on eating out and shopping now could come in handy later on when you have the time for travel and hobbies.

Take advantage of the superannuation tax breaks the government provides.

If able, plan to work a little longer into your senior years. This will help your retirement fund grow and last you longer. You may even be able to work part-time while enjoying the financial benefits offered to seniors.

With reliable financial advice, you can make some smart investments that will continue to gradually increase your wealth, even after retirement. Some investments are a good idea since they’ll help your funds keep up with the current economy.

Need Help Putting The Pieces Together?

The Australian Securities & Investments Commission (ASIC) has a calculator to help you determine how much you need for retirement. While it’s not a predictor, this tool will give you an idea of what factors you should consider.

The bottom line is that it’s hard to know exactly how much you’ll need down the road. There’s no such thing as saving up too much and you can’t start too early!

For smart saving strategies and more tips on figuring out your retirement needs, talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your appointment.

Written by Ben Calder, Private Client Adviser at Calder Wealth Management.