Costs of Living in Retirement
Are you looking to retire? The Association of Superannuation Funds of Australia (ASFA) regularly publish figures and the December 2018 ones showed an increase in the costs of retirement. The average cost of retirement for people retiring at age 65 is approximately $60,977 per annum for couples and $43,317 for singles for a ‘comfortable standard of living’.
So the question then is, how much money do you need when you retire? Based on the figures released by ASFA, an average single retiree would require at least $545,000 in super benefits in order to fund their retirement and couples would require around $640,000. This is assuming you are a home owner with no mortgage.
But what do all these numbers mean to you and your retirement? Well, really all these numbers are just that, ‘numbers’. It’s important to understand that a comfortable lifestyle for one person may not be the same for the next. Some retirees may require $100,000 per annum to live comfortably and others may only require $40,000. One thing that is certain however is the cost of living will go up in the future and most importantly you need to prepare for it.
Instead of worrying about the large sums of money required to retire on, it’s really important to have an understanding of the level of income you require once you’ve retired and work out from there how much you require in order to retire comfortably, taking into account your assets and other entitlements such as the Age Pension. A good starting point to determining how much you’ll need is to take into account your current living expenses. A common mistake here is to use the “off the top of my head” figures to determine expected living expenses. The issue with that is, often we under and over estimate expenses, which leads to very misleading results.
At JBS, we recommend doing a budget, yes I know I hear you groan at that, but it really is the best way to calculate just how much you are spending each week, fortnight or month. Another common way is to review how much your credit card statement is each month for the past 12 months, plus how much you have taken out in cash. Pulling a csv statement of each of these accounts will help you get these figures and you might just get a surprise at where your money really is going if you haven’t done this for a while.
Once you’ve determined your living expenses, the next step is to review whether certain expenses you’re paying today will still be payable once you’ve retired. Often these may include your mortgage repayments, expenses for kids, and work related expenses. Once retired, it’s likely that these will be replaced by more travel or expenses and time for hobbies or grandkids and all this needs to be taken into consideration.
Say you’re 55 years old, you’ve done your sums and calculate you’ll require $60,000 per annum in retirement. How do you then determine the following?
- How much do you require to put into super each year to meet your retirement goals?
- Will your super benefits be enough to fund your retirement expenses until your life expectancy?
- When is your life expectancy?
- When will your super and investments run out, and
- How often should you review your retirement benefits to ensure you’re on track to meeting your goals?
From what you’ve read so far, I imagine you’re beginning to understand the complexity in determining how much you require to retire on. The main point to highlight is that you need to take time and be realistic with your budgeted retirement expenses. Know where your money goes now (before you retire) so you can determine if you will spend the same in retirement.
Doing all this yourself can become very complex and seeking professional advice means there’s someone there to assist you in achieving your retirement goals by coaching and helping implement different strategies to suit your needs. You can then worry about what you’re going to do in retirement rather than worrying about how you are going to fund it, as you’ve outsourced that to us!