Will your money last?
As Australians are now, on average, living longer, superannuation needs to stretch even further to cover living expenses. So, will your money last as long as you live?
You have a 50/50 chance of living as long as your life expectancy and in some cases, you may even exceed it. So, how do you make sure that you have enough money stashed away to last a lifetime?
The Australian Securities and Investment Commission (ASIC) has a useful guide that can assist you to estimate how long you will live, how much money you may need and how you can maximise your retirement planning to achieve your target.
But as no one has a reliable crystal ball, being prepared is the next best thing.
How much is enough?
After considering the many ways you may wish to make the most of your ‘second life’ after full-time work, you should have a clearer vision about your future lifestyle needs. The next, critical question is; how much money will you need to make it a reality?
How do you calculate future financial needs?
How much will it take to fund the lifestyle you want?
How much will you need in retirement?
According to calculations from the Investment and Financial Services Association (IFSA), most Australians will need approximately 65 per cent of their pre-retirement income to maintain their current lifestyle in retirement. If you have a large expense, such as an overseas trip, planned for your retirement you may need even more.
Based on this 65 per cent estimate, if you’re currently earning $70,000 a year, it’s estimated that you’ll need approximately $45,000 a year to maintain that lifestyle in retirement.
How much super is enough?
This is a smart question to ask early on, because the fact is that most people don’t have enough to retire on. The most recent Association of Superannuation Funds of Australia (ASFA) Retirement Standard found that the average annual income required to provide a comfortable retirement is $42,569 for a single person. On average, many people will face a shortfall in their superannuation and will need to partially rely on the Age Pension to fund their retirement.
Tips for increasing your super before retirement:
If you’ve only got a few years until retirement, there are still things you can do to dramatically improve your situation. You can concentrate on maximising your super benefit now by:
– increasing the amount you are contributing,
– consolidating your super if you have more than one plan,
– reviewing the options/ways in which your super is invested.
You should also look at your investment options outside of super and see if they are in the most tax-effective environment.
How long will your money last?
And more importantly, how long does your money need to last? Answering this question is easier said than done. For example, if you’re planning to retire at age 65, the research suggests that you’re likely to live for approximately another 20 years. The average Australian woman at age 67 has a life expectancy of about 86 years and the figure for Australian men is about 84 years. This is based on the 2010-12 life expectancy tables (ABS Feb 2013).
According to research by the Investment & Financial Services Association (IFSA), the Age Pension won’t provide nearly enough to fund the lifestyle most of us would like when we stop working. But knowing how much super you will need is different for each person – as one size certainly doesn’t fit all.
Calculating how much you need to retire on is critical if you want to maintain your current lifestyle and continue to enjoy new goals. And as noted earlier with regards to the ASFA Retirement Standard, most of us need more than just the Age Pension to maintain our standard of living.
No plan is a good plan if you don't know how much your need, writes John De Ravin.
Cash-Strapped Couples and Singles and Constrained Singles bear the brunt of cost-of-living increases
Increased longevity is heaping real pressure on retirees' finances.
Retired actuary and ‘rule of thumb' co-creator John De Ravin explains how you can spend with
Every retirement is unique. Maybe dining out isn't your thing, but you couldn't bear to give
Author and retired actuary John De Ravin has some strong words for retirees holding too much
Simple rule of thumb helps retirees decide how much they can draw down.
Just 19 per cent of Australians expect to be able to live comfortably off their super.
Friday Flash Poll findings reveal that the top end is out of touch with retirement.
Most retirees are concerned that their savings will not last in retirement.
Where does your money go? We ask economist Matt Grudnoff for some answers.
The lifestyles afforded the haves and the have-nots are poles.