Lesson 31: Do you know how much cash you'll need in retirement?
Let's calculate how much you need to save to enjoy your retirement!
Did you enjoy last week's challenge? I know I did. A little
relaxation was just what the doctor literally ordered. My fuzzy eyes became a migraine that knocked me flat for four days! I hope you all took some time to do something you find relaxing, because it is really important to give yourself time to just be.
After last week, and putting plans in place to build a retirement nest egg, you need to know just how much you are going to need in
retirement, and that is the $64,000 question.
How much you need to be saving now to enjoy a comfortable retirement largely depends on how old you are now and how long you
have before you retire, and how much you have stashed away in superannuation and savings, as we discovered last week.
Don't think you don't have to be actively saving for retirement. Right now, the chances are that the superannuation you have and
are building will not be nearly enough to keep you even modestly comfortable. And you cannot rely on the Age Pension either, because there's a better than fair to middling chance it won't be around in it's present form, and if it is it certainly won't be enough to
live on, let alone live comfortably on.
I'm sorry to be the bearer of such bad news but it is what it is. You are much better to save now, regardless of how old you are or where you are in life, to be financially independent in retirement, so you can be sure you'll be able to maintain the standard of living you want to.
When it comes to saving, many experts suggest that you should be saving 15% of your gross income just for retirement! I know, 15% is a mind-blowing amount to have to find and save. It's even more than I suggest in the 10-10-80 plan. Yikes!
The good thing is that hopefully you won't need as much cash in retirement as you do now. With some careful planning and budgeting the mortgage will be paid off, and you won't have any other debts. That means you won't need quite as much money to maintain your standard of living.
A good plan is to aim to live on approximately 75% of your gross income after retirement. Your superannuation will make up some of that, and perhaps the Age Pension. The rest will have to come from your savings or part-time work. And who really wants to be working when they should be enjoying life as a retiree?
So if you are a married couple, earning $75,000 a year before you retire you need around $56,000 to live the lifestyle you currently
have, without too many sacrifices.
So where will that $56,000 come from?
While there is no official retirement age in Australia, the age at which you become eligible for the Age Pension is currently 67 years
of age and that seems to be the magical point at which most of us choose to retire. In the past, few chose to work beyond retirement age, although in recent years more and more Australians are choosing to stay in the workforce.
That's all well and good, but with advances in medicine and the better health we enjoy, we are living a lot longer in retirement
than every before. When the Age Pension was introduced in 1909 only about 4% of the population lived long enough to actually claim it - 65 years was a ripe old age and retirement age until 2017 when it started to increase to today's 67 years of age. And of those that did, very few of them claimed it for too long, certainly not the 30+ years expected by today's retirees.
The general consensus is that if you retire at the normal retirement age, which is currently 67 (and it will be adjusted regularly in line with longevity) you should have six times your salary saved and invested well to maintain your lifestyle.
So, if your annual salary is $100,000 you should have $600,00 invested and/or saved to maintain a comfortable retirement
lifestyle (it will give you an income of around $55,000 for a married couple). If you want to live a better than comfortable
lifestyle then the consensus is around twelve times your annual salary, so $1.2 million in superannuation, savings and investments.
Now obviously the younger you are, the longer you have to save that money and build that portfolio. If you are 40 or older, you need to be putting as much as you possibly can into your superannuation (speak to a superannuation specialist, the laws regarding salary
sacrificing and topping up super have just changed - again) and in investments and cash savings.
Those figures look huge, but don't despair. Think about the 15% you need to be saving. If you are working then you already get 12% saved in compulsory superannuation, so you only need to save 3% yourself. Three percent is a reasonable expectation, especially as you are already saving 10% (the 10-10-80 Rule, remember?).
Start actively saving for retirement, do your best to maximize the opportunities available through your super fund and take a good
look at exactly where you want to be in retirement and what you want to do.
If you want to travel overseas every year, update your car every 5 years, eat out regularly, then you will need more than the retiree
whose idea of bliss is sleeping until 9, digging his garden and chatting to other passengers on the bus.
These plans aren't set in concrete, they can change as they most likely will over time.
You just need to start, right now, if you want financial independence and a comfortable lifestyle in retirement.
Lesson 31 Challenge: This week work out just how much you think you'll need to live on when you retire. Then work out how long you have to save that amount and plan some strategies to start building your retirement fund.
Did you enjoy last week's challenge? I know I did. A little
relaxation was just what the doctor literally ordered. My fuzzy eyes became a migraine that knocked me flat for four days! I hope you all took some time to do something you find relaxing, because it is really important to give yourself time to just be.
After last week, and putting plans in place to build a retirement nest egg, you need to know just how much you are going to need in
retirement, and that is the $64,000 question.
How much you need to be saving now to enjoy a comfortable retirement largely depends on how old you are now and how long you
have before you retire, and how much you have stashed away in superannuation and savings, as we discovered last week.
Don't think you don't have to be actively saving for retirement. Right now, the chances are that the superannuation you have and
are building will not be nearly enough to keep you even modestly comfortable. And you cannot rely on the Age Pension either, because there's a better than fair to middling chance it won't be around in it's present form, and if it is it certainly won't be enough to
live on, let alone live comfortably on.
I'm sorry to be the bearer of such bad news but it is what it is. You are much better to save now, regardless of how old you are or where you are in life, to be financially independent in retirement, so you can be sure you'll be able to maintain the standard of living you want to.
When it comes to saving, many experts suggest that you should be saving 15% of your gross income just for retirement! I know, 15% is a mind-blowing amount to have to find and save. It's even more than I suggest in the 10-10-80 plan. Yikes!
The good thing is that hopefully you won't need as much cash in retirement as you do now. With some careful planning and budgeting the mortgage will be paid off, and you won't have any other debts. That means you won't need quite as much money to maintain your standard of living.
A good plan is to aim to live on approximately 75% of your gross income after retirement. Your superannuation will make up some of that, and perhaps the Age Pension. The rest will have to come from your savings or part-time work. And who really wants to be working when they should be enjoying life as a retiree?
So if you are a married couple, earning $75,000 a year before you retire you need around $56,000 to live the lifestyle you currently
have, without too many sacrifices.
So where will that $56,000 come from?
- the Age Pension - this is subject to an income test
- from superannuation
- from other sources - you may need to keep working in retirement, at
- least part-time.
While there is no official retirement age in Australia, the age at which you become eligible for the Age Pension is currently 67 years
of age and that seems to be the magical point at which most of us choose to retire. In the past, few chose to work beyond retirement age, although in recent years more and more Australians are choosing to stay in the workforce.
That's all well and good, but with advances in medicine and the better health we enjoy, we are living a lot longer in retirement
than every before. When the Age Pension was introduced in 1909 only about 4% of the population lived long enough to actually claim it - 65 years was a ripe old age and retirement age until 2017 when it started to increase to today's 67 years of age. And of those that did, very few of them claimed it for too long, certainly not the 30+ years expected by today's retirees.
The general consensus is that if you retire at the normal retirement age, which is currently 67 (and it will be adjusted regularly in line with longevity) you should have six times your salary saved and invested well to maintain your lifestyle.
So, if your annual salary is $100,000 you should have $600,00 invested and/or saved to maintain a comfortable retirement
lifestyle (it will give you an income of around $55,000 for a married couple). If you want to live a better than comfortable
lifestyle then the consensus is around twelve times your annual salary, so $1.2 million in superannuation, savings and investments.
Now obviously the younger you are, the longer you have to save that money and build that portfolio. If you are 40 or older, you need to be putting as much as you possibly can into your superannuation (speak to a superannuation specialist, the laws regarding salary
sacrificing and topping up super have just changed - again) and in investments and cash savings.
Those figures look huge, but don't despair. Think about the 15% you need to be saving. If you are working then you already get 12% saved in compulsory superannuation, so you only need to save 3% yourself. Three percent is a reasonable expectation, especially as you are already saving 10% (the 10-10-80 Rule, remember?).
Start actively saving for retirement, do your best to maximize the opportunities available through your super fund and take a good
look at exactly where you want to be in retirement and what you want to do.
If you want to travel overseas every year, update your car every 5 years, eat out regularly, then you will need more than the retiree
whose idea of bliss is sleeping until 9, digging his garden and chatting to other passengers on the bus.
These plans aren't set in concrete, they can change as they most likely will over time.
You just need to start, right now, if you want financial independence and a comfortable lifestyle in retirement.
Lesson 31 Challenge: This week work out just how much you think you'll need to live on when you retire. Then work out how long you have to save that amount and plan some strategies to start building your retirement fund.