Find me someone who doesn’t dream of a comfortable retirement. But, what’s comfortable to you, may not be quite my idea of retirement nirvana. I might be happy with a little caravan by the ocean but another person might see themselves travelling to exotic locations twice a year.
Planning for a comfortable retirement is less a matter of managing your expectations and more a matter of managing your finances in a way which can ensure your expectations meet reality.
So, what is ‘comfortable’ and just how much will you will need to ensure you are holidaying in the Maldives at least once a year?
Before we think about the dollars, let’s take a look at what exactly living ‘comfortably’ means.
According to the ‘Retirement Standard’ released by the Association of Super Funds of Australia (ASFA) 1, if you can see yourself driving a reasonable car, wearing good clothes, drinking bottled wine, and holidaying anywhere you’d like to go in Australia with the occasional overseas flight to a destination of your fancy, then you’re looking for a ‘comfortable’ retirement lifestyle.
Sounds good, right? But how much would you need to live out your golden years in ‘comfort’?
Assuming that you are of reasonable health and own your home outright, ASFA reports that a couple seeking a ‘comfortable’ retirement would require a lump sum of $640,000 in their super fund, and a single person would need $545,000. These figures assume that all capital is drawn down and retirees are receiving a part Age Pension.*
Given that these figures are subjective and based on general assumptions, you could also do a quick calculation by assuming that you will need around 67% of your current income (two-thirds) to maintain your pre-retirement lifestyle.2
While this all sounds straight forward, a recent study by Griffith University found that 80% of Gen X and Gen Y Australians are not on track to enjoy a ‘comfortable’ retirement. That’s essentially those of us older than 24 years but younger than 53.3 While the report acknowledges that this is based on ‘worst case scenario’ assessments, there is a very real chance that many people who are in the height of their earning capacity – or coming into it – are not putting enough into their super funds or have the right investment vehicle in place for them.
Here are just a few things you could consider to ensure you’re holidaying in the Greek Isles, occasionally, in retirement (be sure to seek professional financial advice before making a decision):
Generation X (born 1965 – 1979)
- Ramp up – If you haven’t already don’t wait another day to have a critical look at your current superannuation plan including your contributions and if you are going to meet the ASFA’s ‘comfortable’ lump sum guide.
- Top up – Depending on your own financial situation, it could be time to consider topping up your superannuation contributions through salary sacrifice, bonuses, tax returns etc. Not only could this increase your super fund balance at retirement and provide a greater base for investment earnings, it could also reduce your current taxable income.
- Reach out – It could be worth your while seeking professional financial advice as, depending on your situation and risk appetite, you still have time to consider higher-risk investment options that have the potential to yield a better outcome for you.
Generation Y (born 1980 – 1994)
- Top up – Depending on your own financial situation, it could be time to consider topping up your employer’s super contributions through a salary sacrifice scheme. While it’s understandable that you may not think this is necessary just yet, a small amount each pay cycle now could secure your retirement future with minimal pain. Plus, any extra contributions could reduce your taxable income. It’s a win, win situation.
- Don’t be completely clueless – There’s an old saying that encourages people to avoid discussions around money with your family and friends. Wrong. Talk to your parents, friends, colleagues and financial adviser about money management and make yourself aware of what is out there in terms of financial products and investment opportunities. Get really clear on what you need to be doing now, in 10 years, and in 10 years after that.
- Find your cash – Many of you have probably worked several part-time jobs and many of you will work for various companies throughout your career. Make sure that you keep track of your super accounts – there are billions of dollars of lost super reported every year, so make sure your hard-earned cash is accounted for.
No matter which generation you fit within or what your idea of a comfortable retirement looks like, simple steps that you can start considering now will leave you well within reach of nights at your cosy beach shack or jet-setting your way to the Maldives, the choice is yours. For more on Super, test your knowledge with our recent post on How much do you really know about Super?
*Any information provided by Trilogy is general information only and does not consider your objectives, financial situation, or needs. All figures within this article are as at March 2018 dollars using 2.75% AWE as a deflator and an assumed investment earning rate of 6%. They are based on the current means test for the Age Pension in effect from 1 January 2017.