So what sort of retirement do you envisage? There’s no right answer of course: some people want to see the world (and never stop), others look forward to time for quiet contemplation.
As with all eras in life, planning and plotting—dreaming and scheming—is an essential part of mapping out the future we want. And sorting out the money—ensuring you have financial security—is crucial to finding the freedom for an enriching retirement.
Some questions to start with
Here are a few questions to get you underway. Thinking about these will likely lead to more questions, but that’s part of the fun. Part of the journey.
- Where will you live when you’re retired?
- What will you do with your time?
- How much money will you need for your retirement plan?
- Where will the money come from?
- What can you do to keep yourself healthy?
Let’s look at the money side of things first.
How much money will you need?
The answer to this question has a lot to do with how much super you’ve saved—and how frugally/extravagantly you intend to live. The old adage that you should ‘cut your coat according to your cloth’ really applies.
It’s possible to get by on the age pension and other government supplements, but keep in mind the former’s set at about 28% of the average wage (and it’s not going to increase).
Assuming you have some savings and Super, how much should you set aside?
If you already have a personal or household budget, update the info to reflect your imminent retirement. While your work costs will be reduced or even eliminated, you’ll spend more in other areas eg. medical costs, travel and general ‘adventuring’. As a rule, most people need 70 to 80% of their pre-retirement income to maintain the standard of living they enjoyed before.
Keep in mind your plan needs to be a long-term one. It’s likely that your spending—and your needs—will be different in the later years of your retirement to what they were at the start. Your plan will have to evolve. It’ll have to be adaptable.
And where will that money come from?
Once you reach retirement age—currently 65—you’re eligible for a fortnightly age pension (subject to asset and income tests). In 2015, this provides a maximum income of $854.30 a fortnight for singles, and $1,288 per fortnight for couples.
You can start accessing your super as soon as you hit your retirement age. Obviously, the less you draw down, the more funds you’ll have later on; because you’ll not only have a larger remaining nest egg, but you’ll be earning extra interest on that extra money.
Your super draw-down strategy in a word? Restraint.
Ideally, soon-to-retire Australians have a diverse range of investments besides their super scheme and the family home. You can never do enough research.
Have a look at ASIC’s Moneysmart website: their Financial Decisions at Retirement (PDF, 1.41MB) is particularly good. And NAB has a raft of resources you might find helpful.
Down-sizing your home
A large proportion of many Australian’s wealth is tied up in their family home. Many intend to down-size and buy a smaller, cheaper place. The extra cash—that realised equity—can then be invested and start generating an income.
The extra income can be nice. But it’s also a great chance to keep using the valuable skills you’ve built up over years. Or you might use this opportunity to try your hand in an entirely new industry.
You’re never too old to learn.