Good retirement planning starts by knowing how much you need in retirement. While many figures get bounced around by commentators, your recent year’s spending is the best guide we have as a starting base for discussions with you.
Tip: Most people spend a lot more than they think they do.
If your household income has been $100,000 pa (after tax) you will find it very difficult to adjust to a figure of $52,000 pa (that’s $1,000 per week). We recommend you get into your ‘retirement income zone’ well before you retire.
Spending more than you planned in retirement will result in you eroding your capital and ultimately running out of funds. Once you run out of funds you will have to rely on the Age Pension (which does not provide for an abundant lifestyle on its own).
No one likes to be told they are spending too much money, but the reality is lots of people do.
The age pension is a key aspect of retirement. Spending all your assets to then survive on the age pension is a not a robust financial plan and is likely to end in disappointment. The current age pension is $34,252pa ($658.70 each per fortnight for a couple) or $22,721pa ($873.90pf for a single). Compare this to your current household income after tax to get an idea on how much this is.
Age Pension Eligibility
Not everyone who is old enough for the age pension will be eligible for the age pension. The government applies an assets test and an income test. Over certain limits the age pension reduces on a pro-rata basis from the maximum level to nothing.
The assets you can hold and still get some age pension will reduce on the 1st January 2017. What does this mean? A lot of people will lose all of their part age pension and many will see their pension heavily reduced. Only a few people will see their age pension rise.
How Much Income Do I need in retirement?
The magic number will be different for each individual or couple. As part of a plan we will look at your previous year’s spending/saving/debt reduction patterns to get an idea if your estimate of your retirement income differs from your actual spending.
When Can I retire?
You can retire whenever you want, however those born after 1st January 1957 will need to be age 67 or older to apply for the age pension. If you want to retire before this age you will need to fund all of your retirement income from your own reserves/resources until you qualify for the age pension (that is, if you actually qualify at all).
The age you can access your superannuation is earlier than the age you may be eligible for the Centrelink ‘Age Pension’. However, the age you can access your superannuation is progressively increasing from age 55 to age 60, but don’t confuse this with the age you can apply for the Age Pension which is a little higher.
Working Past 65 – Typically you don’t have to retire when you reach the Age Pension age. Many people continue to work because they enjoy their work (this is common with doctors). There is nothing wrong with continuing to work full-time or part-time past the age of 65 if you want to.
In summary, the following applies:
- If you want to retire before you can access your superannuation (currently increasing each year from 55 to 60) you will need some non-superannuation savings to rely on until then
- If you want to retire between being able to access your superannuation and age pension qualifying age you will need either non-superannuation savings and or superannuation savings to generate an income
- After age pension age (65-67) you can use, non superannuation, superannuation and if you are eligible, the age pension to make up your retirement income
The earlier you start planning, the more you will achieve. The reality is, people wait until they want to retire (or an event occurs, such as being made redundant or the passing of someone they know) before putting any serious financial plan in place.
The ten golden years before retirement is the time to really get your stuff together. If you have not got your debt under control you need to have a debt plan and start implementing it. Debt will be a real problem for people in Sydney in the years to come. If you don’t ever think you will have it under control you need to think about your “debt exit strategy”. Sweeping it under the carpet won’t address the problem in the long term.
If the amount owing on your mortgage has been trending up through redraws and refinancing, you are heading in the wrong direction. Ask yourself this, how long are you really going to work for? Taking out a 30 year mortgage when you are 50 might sound ok, but are you going to work until you are 80?, the reality is no you are not?
Ask yourself this, if your mortgage has been going up, how are you going to stop it going up overtime and then get it to head down and ultimately pay it off?