It could be fair to say that many Australians aspire to at least a “comfortable” retirement.
Do you know what annual income would provide “comfort” by your standards? Do you know how much that means you’ll need in retirement?
To enjoy a “comfortable” retirement, singles at retirement (aged 65) will need $545,000 in savings, to generate a yearly income of $43,317. Similarly, couples at retirement will need $640,000 to generate $60,977 a year. The figures in both cases assume that the retiree(s) own their own home, and do not pay rent or make mortgage payments. That’s according to the ASFA Retirement Standard for the December quarter 2018.
If the retirement lump sum doesn’t work for you
BT’s Technical & Strategy Specialist Tim Howard acknowledges that ASFA’s lump sum figure is a great start, but ultimately, it’s about the individual and the lifestyle they want to lead.
It’s about defining the kind of lifestyle you’ll want and what kind of income that might require annually, combined with your expectation for how many years you’ll live. That can then be converted to a dollar amount.
Reap the benefits of compound interest
Start contributing when you’re young and you could reap the rewards of compound interest.
“Compound interest is one of the simplest and greatest financial concepts to understand, and I strongly suggest you adopt it in your financial life,” says Tim. “By spending less than you earn and saving the rest, you allow the interest on the amount you save to earn interest on interest over time, year after year”.
In theory, it should be easier to put extra money into super when you’re young. You’re likely to have fewer financial commitments (eg mortgages and children) and are less likely to have to leave the workforce to look after children.
Already 50 and not feeling “comfortable”? It’s never too late to get started
If you’re older and not where you want to be in the quest for a comfortable retirement, it’s not too late. Tim suggests these steps to take action:
- Get yourself well educated around your choices and potential strategies.
- Use a Retirement Income Calculator to see the potential impact that additional contributions could have on your super balance over time. A transition-to-retirement strategy for instance could also potentially enable you to put additional money into the tax-effective environment of superannuation.
- Look at your current lifestyle and see if there are any trade-offs you could make that allow some of today’s disposable income to be placed towards tomorrow’s savings.
- Depending on what you can afford, personal advice from a financial adviser can benefit individuals.
- Think about your retirement not as just what you’ve got in your superannuation, but the value of all your assets which can help fund your lifestyle in retirement.
Time to get moving
Overall, Tim believes that Australians aren’t thinking all that hard about what is required to finance their retirement. He believes, what would be useful, is spending more time considering the way they want to lead their later years.
“While this might sound challenging at first, by having a plan and breaking things down into simple, achievable steps, targeting a comfortable retirement may not be as far off as you think,” says Tim.