How much money do you need to retire - your thoughts?

Super Consumers Australia at CHOICE is working with research firm Fiftyfive5 to survey Australians on how they plan for their retirement. This research will be used to develop a set of retirement income targets which will give people a better idea of how much they’ll need to save to meet their retirement needs.

There’s no ‘one-size-fits-all’ solution to this problem, so what are your thoughts?

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There isn’t a one size fits all, but, in general most retirees needs less money to live off than they did when they worked. This is usually because they don’t have financial pressures such as home loans to service (most retirees don’t have home loans when they retire) or children to raise (most are empty nesters at retirement).

The rule of thumb seems to also indicate that to live comfortably, it should be about 70% or pre-retirement income indexed to factor in inflation etc. I suspect that for lower income earners, the percentage will be higher, likewise for high income earners, the percentage could be lower.

There will be those who may not fit the above general rules (such as those trying to minimise assets, including super, to repay loans at retirement and meet the pension asset test requirements) or have children (those who fail to move out or need to be cared for by their parents). In such case, these are special cases and possibly should be seeking appropriate financial advice before retirement to their own circumstances.

There is also some recent media from some commentators that retirees need more than their pre-retirement income so that they can live it up in retirement. If one expects to have a life better than when working…this is possibly not the norm or expectation of most retirees. If one wishes to ‘live it up’ after retirement, then they possibly should also seek appropriate financial advice before retirement to their own circumstances and expectations.

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I think that is the biggest issue because if you haven’t dealt with those expenses by the time you stop work you are in a bind and choices about when you can afford to retire and how much you need invested will be constrained.

The other point of spending in relation to pre-retirement income is less important because you have greater flexibility. It is possible to reduce your outgoings and (within limits) still have a comfortable life and some may even see this as desirable; that is they may conclude that the level of consumption they had during their high earning years need not continue for a variety of reasons.

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There are different meanings of retiring from work. From a full time job with a salary? Or casual or part time work?
And to no paid work at all, or casual work, or hobby work?

How far are you from getting Gov support like the aged pension?

To me the fundamental thing is to know exactly all your sources of income, and know exactly all your expenditures. And know the value of all your savings and investments, and how those savings are increasing in value.

I reached a ‘magic pudding’ point where my pool of money in investments increased in value more per year than my normal expenditures per year. So I could draw money out to live on, and it would be replenished through investment returns.

I feel that retirement is thus something to be doable.

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It might not be a wash in dollars but the best advice I read over the years, and one that fits my situation, is that a significant number of retired people spend a similar amount to pre-retirement - just on different things.

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I am a retired CPA and get asked about financially surviving retirement. I always reply, “see a financial planner”, and then proceed to outline how to source such a person. The reality is reflected in BrandanMays’ expression, “There’s no ‘on-size-fits-all’.”

My health forced me into early retirement 20 years ago. My retirement income not only fell significantly short of my salary at retirement, but it also fell short of what I had been aiming at for retirement. But as the months rolled by, I saw an up-side to my new income position. Professional fees dropped 90%, payments for superannuation stopped (very significant), I no longer needed the house size I had and found that relocating to an area more supportive in facilities for retirement life—shopping, medical, gym, coffee shops, swimming, etc. Such a move can produce considerable savings and free up capital to invest. Finally, there were sizable savings in clothing (I wore suits), transport costs (petrol, servicing, tyres, cars lasted longer), professional development costs (substantial), various association fees, lunch costs, etc.). Importantly, there were tax advantages attached to a retirement income.

A critical facet to retirement is what you intend to do with your time. This was an area I had planned well, and it had little to do with my profession. However, it is often a governing factor to financial survival. Many professional people seem to experience difficulty in this area. Their lives have been so engrossed in their work that not only was there no time for extra curricula activities, but they also had nothing planned for retirement.

Lifestyle is paramount. People who expect to carry on in retirement in the same manner when at the peak of their careers will probably be financially challenged. BrendanMays’ comment in reference to the 70% benchmark, “for high income earners, the percentage could be lower” can only be true if the expectation of such people includes a serious look at their proposed retirement lifestyle. Such people can often be heard up into their mid-70s saying, “Oh, I still do a spot of consulting”. This can be a great revealer—they’ve not invested in enough super or they are continuing their vocational lifestyle.

Whatever the expectations from retirement, the key is planning; ensuring enough time to plan adequately; to find the right help; to find out what your contemporaries (and others) are doing, with whom and why. Maintaining the status quo is seldom the answer, but it can be. Seriously challenge every aspect of your lifestyle—if you can’t provide an answer for what you’re doing and why, then it’s likely you need help. Remember, retirement is not a dress rehearsal.

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There are other reasons, such as a former employer having an important project but insufficient expertise to carry it through - recruiting their cadre of retired expertise to get it done. Or a retiree becoming bored with the same old golf and tennis and travel and catching up and gardening, and just wanting a holiday from the holiday.

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The YourLifeChoices quarterly reviews are quite a good starting point to work out where a retiree hopeful can work out in today’s money what they need to have to enjoy a picked lifestyle.

May 2021 figures

which can be compared to Feb 2021 figures

They also usually include a fill in chart so you can compare your spending to each section

In the Feb 2021 issue there are a series of articles on why many people underestimate their financial needs for retirement starting on page 8

https://www.yourlifechoices.com.au/retirement-affordability-index-february-2021/

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Yes, you are right; it’s holes in a crumpet again. My focus, while tending narrow, is more about making sure you know what you’re doing and why. What I’ve said has been gleaned from experience, but you will notice the use of “can be”, “seem”, “probably”, etc. One cannot be definitive and this is what you’ve rightly pointed out. Thanks for taking the trouble to respond. This is a tough area and made increasingly so by world events.

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I find this whole issue a matter that gets waylaid by (hidden) commercial interests. For years, the Australian superannuation industry has fomented the maximum possible paranoia about inadequate retirement incomes as a means of puffing up fees from panicked near-retirees: the more super you need to survive, the more fees for your super fund manager…
It is only in recent times that there has been any scrutiny of “real-life” retirement income estimates. If Choice is intent on examining this are, then please, for god’s sake, do NOT rely on the superannuation industry - or its proxy spokespersons - to provide accurate, reliable or honest advice.
If, in the wash up, it does indeed turn out that we all need a small fortune to sustain our intended lifestyles, then that will be good to know. But, I suspect there may also be some less brutal surprises in store - especially for retirees that have little or no personal or household debt.

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Two aspects of saving for retirement, from our experience.

Inflation is a concern. When super funds show projected future accumulations I’ve yet to see funds promotions routinely adjust their projections relative to future costs of living. It’s important if more realistic assessments of future retirement income are to be provided.
Note: The original ‘Defined Benefits’ entitlements of the public sector of up to 6 times FAS were inflation protected. Today’s accumulative based super is not.

The accumulation of super and taxation appears to work in favour of two income families, compared with single income families. There is now the ability to add to a non working partners accumulated super. Does the structure of super and tax deliver similar outcomes for a couple, or is it better for both to be full time in the workforce as the family becomes more independent? Childcare costs and reduced offsets often make the second income worthless. Are the additional super contributions gained worth the pain?

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Even people who have saved well can never be sure so here is our rule , You can safely retire when the compulsory annual takeout of your super pension fund equals your current after tax take home pay. Until at least age 75 on current rules the compulsory draw down of 4% to age 65 and 5% age 65 - 75 will be less than the median balanced super fund long term earnings of 7% - 8% by about the inflation rate. That way you can be sure you can live as well as you are while working without forcing draw down.

It’s one way to look at it. Whether it applies to all situations is another consideration.

Does one need to first assume your current after tax take home pay is providing sufficient income to live comfortably and meet all needs? Additionally if one is renting compared to a home owner, those renting would need more.

It’s possible to look to the income test for a Part Aged Pension and the level at which support cuts out. This represents one minimum.
In July 2021 the annual income thresholds are $54,220.40 for singles and $83,002.40 for couples.

If super provides that amount of annual income one is independent of the need for government support. Although the reality is those with an aged pension or part pension have additional benefits provided that an independent retire looses at those cut offs. An independent retiree needs slightly more to make up for those loses.

For those with minimal super the maximum Age Pension - single ($952.70 fortnightly including add ons) or approx $24,770 annually and $37,341 total for couples. It’s far below what appears to be the officially determined level of income for a comfortable retirement. IE part pension threshold.

Added note:
National Seniors submission on retirement savings that covers most aspects:

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At retirement we used our Bank’s financial advisor. He handled everything and continues to do and we are balancing out well. The only down-side was moving into a retirement village 15 years ago as it now seems impossible to sell it for enough to move, should we ever need to.

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Been retired for 7 years and so glad I prepared 20 years earlier by attending centrelink seminars and able to find a excellent centerlink financial adviser who gave me printed read-outs of different scenarios to be able to live on my wage with the help of government and allocation pension… Examples,:changing to part-time, working 4 days week, 2 days or stopping altogether. I reverted to this print-out many times over the years and had a clear understanding of when I wanted to cut down or retire.I also topped up as much as I could afford into my super and ended up retiring at 67 . I had many questions that I was able to phone NCRI and always spoke to a financial expert regarding suggestions of my personal circumstances. Glad these options were available at the time as NCRI don’t have this personal service now. I think you can manage on full centerlink pension if you have your house paid off, otherwise it will be a struggle.

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You can. I am doing just that, having been forced to stop work due to various disease processes, 5 years earlier than I would otherwise have done. (So I was on disability support, initially) I had just enough in super to cover the remaining payments on my house. Savings whilst I was still working was a joke… paying off a house whilst working part time was more difficult than living on a pension!

There are advantages to the pension. I get free car registration and a free licence. Medications don’t cost as much (though now I am on more than pre-retirement). I can travel via public transport more cheaply (and don’t I wish for the bus stop to be MUCH closer).

Living on the pension with no other income means you have to be super organised. I was not, pre retirement, so I had to get my act together really quickly, to which end I bought an app for my ipad/iphone/mac called Chronicle, and this has helped keep me on the straight and narrow for 10 years now. For those interested (its something I wish had existed long before) its info is at
https://chronicleapp.com/

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These types of benefits differ between states.
There are also discounts on rates, utilities/electricity etc which also differ on a state by state basis.

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I retired a few years ago with about the amount of super the industry recommend.

My observation is that my wellbeing is completely dependent on the performance of financial markets. Over the last few years they have been stellar, to the point that I have increased my budget and deferred putting my super into pension mode. But I still remember the GFC where the value of my shares fell by 50%. So I’ve allowed for an event of that magnitude to happen during my retirement.

The most critical factor is that I own my own home. The calculation would be quite different if I were renting. Today most retirement calculators assume home ownership, but less and less people have that.

For me, retired life is good, or at least it would be if I could spend my travel budget!

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Expect the unexpected and be prepared for derailment. I was single, well planned and on track to retire comfortably, given my frugal lifestyle. I didn’t need to, but I wanted to work till 70 at least.
Then in my 50’s, along comes Mr Z, a financial novice who refuses to plan and has “ideas” that are hard to shift. His wife died leaving him 260K, 6 months later 160 of that had disappeared, spent by his children. The remaining 100 he put into AMP, who lost 43 of it in 18 months. When I married him he had 85k in super, so we lived off my wage, consolidated and salary sacrificed and topped up his super to the max and I managed it for high return. He ended up with 900k but 400 went on buying a house.
He retired at 73 but earlier had decided to move to where I could not get a job in my profession. I had to retire early and not finish building my super. My savings went buying the house and keeping him. Then his sons realised Dad was sitting on a huge nest egg that they could spend and stopped work in their early 40’s. Their wives kept them, but we were constantly asked to help out with buying cars, paying bills, giving cash and gifting property.

They tell him the Govt is going to take everyone’s super, so he better withdraw it all in cash now before they take it; sell the house, rent a little hovel and go on the pension. He believes what they tell him. He changed his Will to leave everything to them. Had I known I would have built up my super instead of his. Being a second wife, even if you have been married to their father for double what their mother was, you will not be accepted into the family - at least this one. I am planning for a frugal retirement, if he dies I will have to replace all the vehicles, farm equipment, furniture etc out of my Super just to get back to “normal”.

How much? $26,000 pa for us (not counting helping out the next generation) as we own our home. The Super financial adviser suggested $53k pa, and a $50k bank balance for emergencies. There isn’t a simple answer.

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A simple four word answer to your question, that applies to all people, is “enough to be comfortable”.

The difficulty comes when you ask 100 people to define “being comfortable” and you are likely to get greater than 99 different answers.

At the lower end of expectations there will be people who have never saved, happy to spend any super payout soon after retiring and then just live off the full pension. At the other extreme there are people who will only be comfortable if their net worth is still growing after paying for their living costs.

Perhaps the targets could incorporate examples of how people with differing income and assets are or aren’t able to cope financially in retirement.

I often find media articles stating that you need a certain amount of assets to comfortably retire to be very unhelpful. Even if everyone had the same living expenses in retirement, the articles imply the same figure for someone age 70 retiring today and someone hoping to retire at age 60 in 2051. Any guidance should specify whether amounts quoted are in 2021 dollars or retirement year dollars.

Another factor that may be misleading is the belief that homeowners need far less than renters in retirement. Whilst this might be largely true, the maintenance and holding costs of an owned home might exceed the rent paid by someone in public or shared housing.

It is also important that people have at least a Plan B and possibly Plans C and D for their retirement budget. Plan A might include investments earning a steady benchmark return each year, income from a part-time job or business continuing for a number of years, rules not changing and poor health or death not arriving in the next 15 years. Whilst you shouldn’t need to completely allow for every uncertainty, it is wise to at least consider them. For example, will a couple still have enough to live reasonably without having to sell assets in a hurry if one of them needs to move to aged care?

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