As we get older, we start thinking about how much we need for retirement. Almost one-third of Aussies believe they’ll need more than $1 million to retire.
In fact, according to a Cost of Living Survey, retirement is now one of the biggest financial pressures weighing on Australian minds.
The survey, which ran in February 2021, asked people to share their biggest household money worries.
It was not a mickey mouse survey either. Over 10,000 people responded to it with retirement number 1 as a concern.
A whopping 40% of respondents were concerned with retirement and how much is required at retirement. Our Number 2 concern?
Mortgage payments for our home mortgages.
With interest rates so low it is worrying that 32% are concerned about payments. This may suggest that people are overcommitting to their mortgages. It does not bode well for the future either with house prices climbing and eventually interest rates will increase.
But back to retirement. Half of the respondents think they will need upwards of $750,000 to retire, with 29 percent believing they will need more than $1 million.
However, according to the Association of Superannuation Funds of Australia (ASFA), if you want a “comfortable” lifestyle you’ll need a lump sum of $640,000 for a couple and $545,000 for a single person.
I think those figures are way too low. Here’s why.
The average life expectancy in Australia is 83 years. That means on average you will need about 20 years of retirement income. $640,000 equates to about $32,000 a year. I don’t know about you but unless you are surviving off Cup A Soup, $32,000 a year is not going to buy much. And you will not get too many overseas trips from that either.
I think a comfortable retirement is one where you can afford what you do now in retirement. This may sound like a lot but remember you should have paid off your mortgage and hopefully you have managed to extract the kids from home.
What Does This Mean for You?
1. Superannuation
– We all get Super statements but when I ask my clients how much they have in Super, most cannot tell me. The problem is when we get those statements, we glance at it and put it away as we know it means nothing right now. Besides you may have a 3-year-old who has just poured a small tub of yogurt on their head so that is much more important.
When you get those statements and look at them. Then ask yourself ‘this has to last me 20 years. Is it enough?’
– If you have multiple Super accounts, get them consolidated.
– How much is your fund charging you? If high, consider changing funds.
– Has your Super performed? If not, consider changing funds.
- Investments Outside Super
Many people have investments outside Super.
These are things like the share market and investment properties.
The share market historically has increased in value although in the short term it is volatile. Overall, it can be difficult to predict what you share values will be in retirement.
If you have decent stock market holding or portfolio it may be a good idea to have it reviewed by a financial planner. They can point you in the right direction.
Real Estate can be seen as a bit more stable.
Many can downsize. If investment properties are held the rental income can be used as retirement income so it would be a good idea to plan so that investment loans are paid off prior to retirement.
Work out what your investment property income will be and add the amount you think you will get from Super. Will that be enough? If you are not sure you need to speak to a professional financial planner.
If you would like assistance in this matter, please contact the office and we will ask our Financial Planner to contact you.
