When will you retire? How long will you spend in retirement? How much money will you need in retirement? What will your retirement lifestyle look like?
If you’re already retired, what should your budget look like and what will you need to plan for as you get older? Your financial adviser can also assist with the complexities of aged care and help you select the preferred option for your individual situation. Answering these questions now can give you real peace of mind, and lead to a satisfying, fulfilling and financially secure retirement.
Retirement lifestyles – which one suits you?
Beer or bubbly? Caviar or chips? Harbour-front mansion or sea-change shack? We all have different hopes, dreams and lifestyle requirements. Defining yours is an important step in planning your retirement.
In order to help define how much you’ll need to spend each year in retirement, now or in the future, the Association of Super Funds Australia (ASFA) releases an updated Retirement Standard1 every quarter. This Retirement Standard benchmarks how much, in today’s dollars, retired singles and couples aged around 70 need to spend each year to enjoy what ASFA define as either a ‘comfortable’ or ‘modest’ retirement lifestyle described using everyday indicators.
A ‘comfortable’ retirement is defined by ASFA as enabling an older, healthy retiree to be involved in a broad range of leisure activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel. Funds required per year for a ‘comfortable’ retirement lifestyle.
|
Single |
$42,962 per year |
|
Couple |
$58,915 per year |
A ‘modest’ retirement is defined by ASFA as better than the Age Pension, but still only able to afford fairly basic activities such as one or two short breaks in Australia closer to where you live, infrequently eating out at cheaper restaurants, owning an older car, buying reasonable clothes, haircuts at basic salons, infrequent paid leisure activities and private health cover but with little money left over for home repairs.
|
Single |
$23,695 per year |
|
Couple |
$34,090 per year |
Age Pension2 only: includes day trips in your own city, only inexpensive takeaway meals, no car, basic clothes, less frequent haircuts, very low cost leisure activities, less heating in winter, no private health insurance and no budget for home repairs.
|
Single |
$22,666 per year |
|
Couple |
$34,169 per year |
Of course, you may prefer more than a ‘comfortable’ lifestyle. But these ASFA figures provide excellent starting points for understanding the potential costs of living in retirement.
Planning for later years of retirement
Australians are living longer and spending more time in retirement than ever before. An increasing number of Australians will live to age 90 and beyond.3 This may bring a new set of challenges to retirement, which can mean it’s even more important to have a plan in place.
Last year ASFA also launched a new Retirement Standard for older retirees, Spending patterns of older retirees: New ASFA Retirement Standard,4 designed to provide a picture of how spending requirements change as people enter their late 80s and early 90s, again benchmarking both a ‘comfortable’ or ‘modest’ lifestyle. Perhaps spending more on health care and support including medical costs while spending less on leisurely activities. This information can help those who have already retired plan for later years and budget accordingly.
Funds required per year for a ‘comfortable’ retirement lifestyle for older retirees.
|
Single |
$38,460 per year |
|
Couple |
$53,937 per year |
Funds required per year for a ‘modest’ retirement lifestyle for older retirees.
|
Single |
$23,062 per year |
|
Couple |
$34,257 per year |
It’s also important to discuss with your financial adviser how you can plan for aged care costs, should you eventually need it. According to ASFA5 the probability of requiring aged care is high – the likelihood that a female aged 65 will enter permanent residential aged care in her lifetime is 54 per cent and for a male this is 37 per cent.
This means aged care planning is an important part of your retirement plan, so no matter how near or far, or even if you don’t think you will need it, talking to your financial adviser about it now can help you be financially prepared for whatever the future may hold.
When can you access funds for your retirement?
Currently you must be at least 65 to be eligible for the Government Age Pension, but from 1 July 2017 the qualifying age will increase by six months. It will continue to increase by six months every two years until 1 July 2023, when the qualifying age will be 67.
The ‘preservation age’, or the age at which you can access your super, ranges from 55 to 60, depending on when you were born. Accessing your super when you retire, assumes you have reached the preservation age or some other condition of release. If you are not permanently retired then you may still be able to access part of your super under a transition to retirement pension. Whether you’re working or not, once you’re over 65 you can access your super.
What does retirement look like for Australians?
The Australian Bureau of Statistics (ABS) Retirement and Retirement Intentions, Australia6 (July 2012 to June 2013) says the average age for recent retirees, or those that had retired in the five years prior, was 63.3 years for men and 59.6 years for women.
The main reasons for retirement, the ABS report says, were ‘reached retirement age/eligible for superannuation/pension’ and ‘sickness, injury or disability’.
Of the 4.7 million people in the workforce and over the age of 45, 3.7 million people unsurprisingly said they intend to retire sometime in the future. Far more interesting is the fact that 605,400 people said they never intend to retire, and 385,500 did not know whether they intend to retire.
Around 40% of full-time workers said they intend to work part-time before retirement, to phase in the retirement lifestyle. And 54% of this group said they intend to change to a different line of work during their transition to retirement.
Finally, of the people intending to retire, the ABS states:
- 17% intend to retire at 70 or older
- 49% intend to retire between 65 and 69
- 25% intend to retire between 60 and 64
- 9% intend to retire between 45 and 59.
This makes the average age of intended retirement 63.4 years. More importantly, the figures indicate the broad range of options available. No longer is a full-time worker offered a gold watch and shown the door at a certain age. There are many choices around retirement, particularly for those that have achieved their financial goals.
If you haven’t already, when will you retire?
The figures from the ASFA Retirement Standard assume the retiree age of 65. If you plan to leave work five years earlier, that is five more years of income you’ll require. But if you’re one of the 17% of full-time workers that plans to stay in the workplace until you’re 70 or older, the opposite is true.
Putting a date on your retirement, whether it is likely to change or not, is important in terms of planning. Knowing your time left in the job market helps you to figure out your risk profile and investment mix. And knowledge of the number of years you’re likely to be retired for helps you to understand how much you’ll need in retirement.
Being in control of your retirement timeline and familiar with all of the relevant facts means you’re able to make changes along the way, and can be confident in the end result. But you don’t need to do it on your own.
Your financial adviser will continue to walk you through your retirement planning process – whether it’s near, far or you are already enjoying it. Your financial adviser can recommend the financial strategies that can assist you in reaching your retirement goals, such as salary sacrificing, concessional and non-concessional contributions, transition to retirement, spouse contributions and also help you with aged care planning. Starting to take charge and plan now can only help your retirement plans.