With the May 13 government budget announcement looming, there is lots of speculation surrounding retirement as Treasurer Joe Hockey casts an eye over the age pension, retirement age and superannuation – so what can you be doing to set yourself up for retirement?
Depending on your age, retirement may be a distant event you pay scant thought to or it may be arriving sooner rather than later. Either way, it’s a significant life milestone that requires some preparation.
The first thing to tick off your graceful retirement list should be debt, according to Greg Pride, financial adviser with Centric Wealth.
“Don’t go into retirement with debt because debt is a guaranteed expense and if you don’t have a guaranteed income that’s not a good match,” he said.
Paying off the mortgage should be your biggest priority before you head towards retirement – and the sooner you pay it, the more able you’ll be to divert money towards savings and superannuation. Credit card debt, car loans or personal loans should also all be paid off well before retirement.
How much is enough?
To retire gracefully you will need a comfortable retirement income. The obvious question is: how much money will you need?
The answer will to some extent depend on your pre-retirement lifestyle and what you are used to – do you travel regularly or prefer to stay close to home? How often do you like to eat out and how much do you spend on entertainment, for example?
Nevertheless, the Association of Superannuation Funds of Australia (ASFA) offers a helpful guide on how much is enough. The so-called “retirement standard” suggests that a single retiree needs to spend $23,175 a year to support a modest lifestyle in retirement and $42,158 to support a comfortable lifestyle.
For couples, the standard is $57,665 a year for a comfortable retirement, and $33,358 a year for a more modest lifestyle.
Doing the maths
“If you want $60,000 per annum and plan to retire at age 65, multiply that by 13 and $780,000 is what you’ll need,” Pride said.
“That takes life expectancy and inflation into account.
“So to have $780,000 at retirement, work out what you have now, when you’ll retire and how you can save towards that number.”
Pride further suggested that the aged pension may not be a reliable supplement to retirement income in the future, predicting that the family home will be taken into consideration when Centrelink calculates pension payments.
“It’s possible that in the future, Centrelink pensions may be less attractive than they currently are,” he said.
The aged pension is currently $21,505 a year for a single person, and $31,417 a year for a couple.
According to Pride, age 50 is a good time to start thinking about your retirement income and make extra superannuation payments or start a savings plan to ensure you retire gracefully.
“Plan well in advance,” he said.
“Be proactive and get to a finishing stage well prepared.”