If retirement is on the horizon for you, it is time to consider the costs associated with this major change in your life. This means doing some serious math to determine how much money you will need to maintain your retirement lifestyle. To do this, you must consider the following factors.
Factor 1 - Type of Retirement
The first thing you should plan is the type of lifestyle you intend to enjoy once you stop working. Do you want to visit the World? Do you plan on being active with recreational and social activities? Do you intend to just lead a quiet life and downsize into a small home to cut costs? All these questions will help you narrow down the direction you want to go in when you retire.
Factor 2 - How Long Will You Be Retired?
Although this is more of a crystal ball guess, having a life expectancy target will help with the math required for determining your retirement costs. For easy figuring, if you decide to retire at 65, you will likely live another 20 years. In Australia, men aged 65 can expect to reach 84.6 years of age. That number jumps to 87.3 years for women. These numbers are important for your calculations.
Factor 3 - Defining a Comfortable Retirement Income
Fortunately, some of the math has been done for you. The Association of Superannuation Funds of Australia (ASFA) has determined that a single person requires a total of $595k per year. A married couple would need $690k annually. That is based on retirement at age 67. These figures are based on annual budgets of $51,630 (individual) and $72,663 (couple).
Factor 4 - How Much Retirement Savings Do You Need?
While the figures from ASFA give you a sense of what you need, what if you have a different retirement plan? In other words, what if your lifestyle expectations are greater? Provided you are mortgage-free, Money smart offers this simple equation: target 67 percent of your current income as the budget to cover your retirement lifestyle. In real numbers, that means if you currently earn $150k annually, your retirement budget should be $100k a year.
Factor 5 - The Post-Retirement Income Plan
Alright, now that you have some numbers to work with, you need to find ways to reach your target. Fortunately, you should have a few sources of income available. They may include the following:
Superannuation
In Australia, Superannuation is a vital retirement component. It is designed to support you during your working life. As it is a system that adjusts, changes, and flexes each year, it is important to know how to use it to maximum benefit. Different strategies can help with that, including increasing your contributions.
Investments/Assets
In Australia, Superannuation is a vital retirement component. It is designed to support you during your working life. As it is a system that adjusts, changes, and flexes each year, it is important to know how to use it to maximum benefit. Different strategies can help with that, including increasing your contributions.
Age Pension
The Age Pension is an important retirement tool. Roughly 62 percent of Australians aged 67 or older currently receive a partial or full Government Age Pension. There are eligibility requirements to meet, but if you qualify, this pension will provide a good chunk of your retirement income.
Are You Considering Your Best Retirement?
Retiring in Australia may sound like a simple plan. However, you still need to meet the costs associated with a lifestyle that no longer includes a full-time job. This is why it is vital to plan and have the building blocks in place so you can retire financially soundly.
Conclusion
We all know that at one point in our lives, we will have to take a serious look at our future. Retirement is the goal of most, but when you stop working, your income shifts considerably. Depending on the type of retirement you plan to enjoy, the financial cost of maintaining it will be a major concern.
With proper retirement planning and clear lifestyle expectations, you should manage a comfortable retirement for many years. The key to a successful, affordable retirement is building your financial safety net early and continuing to support it throughout your working years.