With Australians living longer than ever before, many of us will spend decades as retirees. Some of us will choose to keep working (either in voluntary or paid employment), others will want to travel or spend time with their families. Whatever you decide to do, planning for it now will help you get the most out of your time.

Give me the main points

  • The type of retirement you imagine has a big impact on how much money you’ll need.
  • As a general rule, your weekly spending will be 67% of your pre-retirement spending according to Moneysmart.
  • Make a retirement plan that’s flexible, adaptable and evolves as your needs change.

Planning can make your retirement dreams possible

So what sort of retirement do you imagine? As with all areas of your life, planning is a great way to achieve the future you dream about. Sorting out your money to make sure you have financial security is an important step to take to make it happen.

Questions to ask yourself to help kick start your retirement planning

Here are a few questions to get your retirement planning underway. Thinking about these might lead you to more questions, but that’s 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?
  • How much financial help could you give to your children/family if they need it?

How much money will you need to retire?

How much money you’ll need to retire has a lot to do with how much super you’ve saved and the lifestyle you’d like to live.

It’s possible to get by on the age pension and other government subsidies, but keep in mind the age pension is currently set at around 28 % of the average full time wage of AUD$78,832 (excluding bonuses and overtime).

Assuming you have some savings and super, how much should you set aside? If you already have a personal or household budget, try updating the information to reflect your predicted spending in retirement. While your work costs will be reduced or even eliminated, you’ll spend more in other areas, for example, medical costs, travel and maybe some ‘adventuring’.

As a rule, most people need around 67% of their pre-retirement income to maintain the standard of living they enjoyed before they stopped working, according to Moneysmart.

Budget Planner

A good place to start is our budget planner. Alternatively, MoneySmart have a range of calculators which can help you plan for your retirement goals.

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 are at the start. Your plan will need to evolve and be adaptable.

where will your money come from?

Age pension - eligibility and amount

Once you reach qualifying age for age pension - currently 65.5 – you may be eligible for a fortnightly age pension (subject to asset and income tests). As of 20 March 2017, this provides a maximum income of $888.30 a fortnight for singles, and $1,339.20 per fortnight for couples including supplements. You can find out more from the Department of Human Services.

Superannuation - when you can access it and how much to spend

You can start accessing your super as soon as you hit your preservation age. Obviously, the less you draw down now, the more funds you’ll have later on. That’s not only because you’ll have a larger amount remaining, but also, if you commence an account-based pension with your superannuation benefits, investment earnings on your investments will be tax-free.

Note: From 1 July 2017 a cap was imposed to the amount that can be transferred to retirement phase in a person’s lifetime. This cap is $1.6 million for the 2017/18 financial year and is subject to indexation. Penalties apply if the cap is exceeded.

You’ll have to withdraw a minimum amount each year from your super pension account, depending on your age. For example, if you’re between preservation age and age 64, your annual payment as a percentage of your account balance must be 4%.

Investments - do your research on what's possible

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

While many Australians have wealth tied up in their family home and some down-size to buy a smaller home to release equity in their home, what you do depends on your own personal circumstances. There are many things to consider before you can do this, including tax implications, Centrelink entitlements and eligibility. It’s important to discuss this with a financial adviser to make sure this is the right strategy for you, before making a decision.

Proposed super top-up limits for downsizers

Budget 2017 proposed a new measure for downsizers effective from 1 July 2018. Based on the announcement, if you’re aged 65 and over, you could add an extra $300,000 to your super fund from the proceeds of selling your family home if it’s your main residence and you’ve owned it for at least 10 years. This, if legislated, can be very helpful for downsizers.

These contributions would be on top of existing rules and limits, and would be exempt from the existing age test, work test and the $1.6 million total super balance test for making non-concessional contributions.

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