BY LAURENCE SMITH, FINANCIAL ADVISER, UEM WEALTH, AUTHORISED REPRESENTATIVE, LIFESPAN FINANCIAL PLANNING PTY LTD AFSL 229892
Every client I meet is chasing a different dream. A common desire is to never have to work again. It doesn’t need to take a lotto win to make this happen, but it will take some planning, some thinking, and some time. Good thing too… as the chances of winning first division in Powerball are one in 134,490,400, and I’m interested in a bit more assurance for my client’s financial future.
There are some common questions that need to be considered when thinking about retirement.
First of all – retirement age. This is the first question that requires some thought, because in Australia, there is actually no set age that determines retirement. Age-based eligibility for the Age Pension currently commences when a person reaches age 67, and Preservation Age (the age at which a person can access superannuation) is currently age 60. But Retirement Age should simply be when a person is no longer reliant upon working to meet their lifestyle expenses.
For some, this could be from 55 if they have investments or income outside of superannuation or 60 if they are planning to access their superannuation for regular income, but there is no hard and fast rule. I’ve come across individuals in the past who continue to work well into their 80s. Granted, they were owners of successful businesses that became multi-generational, and it allowed them to see their grandchildren every day as they became involved in the business, but it is still work. Keep in mind that the earlier one retires, the longer that retirement is likely to last.
Secondly – lifestyle expectations. Again, there is no hard-and-fast rule here. I’ve met people who said they needed a minimum $150,000 per year to remain comfortable, and others who said all they needed was $45,000 per year, a camp oven, and some stars overhead. To some degree, this will be influenced by the income you have been using leading up to your retirement. The best way to find out the expectation that is needed is to complete a budget exercise, but ignore the “income” side of it. Just concentrate on the estimated expenses of everyday life, plus an extra amount for luxuries or “wants”. Things that come to mind may include holidays, travel, home renovations, car replacements, or experiences.
There are also plenty of resources that can help with this stage. For example, the Association of Superannuation Funds of Australia suggests that a comfortable lifestyle for a couple who own their home outright will cost an estimated $73,875 per annum [1]. They also offer a detailed expenditure breakdown on their website for comparison or reference.
Next, looking at what resources are available to make the first part and the second part sing in perfect harmony. Or, at least march to the same beat. This is where financial advice becomes really useful, because funding retirement will come down to a large melting pot of complementary strategies. Will you be funding your own retirement through super? Will an early retiree continue to work part-time? Will someone downsize their family home? Is it important to be debt-free? What if superannuation rules change over time? Will it be useful to use a guaranteed lifetime income product to meet basic expenditure needs?
Retirement isn’t always a set-and-forget situation. Life can throw a few curveballs, and it’s worth considering how things like family dynamics, the longevity of your savings, your changing needs or those of your loved ones might might affect your best-laid retirement plans. In some cases, these factors could even lead you to return to work, whether by choice or necessity.
There’s no one-size-fits-all approach to retirement, and it’s never too early to start planning. Taking the time to prepare and think things through can make a real difference down the track, helping you build a retirement that truly suits your needs and lifestyle.
DISCLAIMER General Advice Warning – this is untailored, general advice. It does not take into account your personal circumstances. You need to decide whether it meets your needs. Laurence Smith is an Authorised Representative and UEM Wealth Pty Ltd is a Corporate Authorised Representative of Lifespan Financial Planning Pty Ltd (AFSL 229892). Laurence Smith may offer services through UEM Wealth and UEM Group. Accounting services are provided by UEM Group. Financial Services (financial product advice and dealing) are provided by UEM Wealth. To the extent permitted by law, although the same adviser may offer you services under the above business, each business is solely and separately responsible for the advice they each provide.
[1] https://www.superannuation.asn.au/consumers/retirement-standard/
