Weighing up how much you'll need to retire?
June 30, 2021
Predicting how much income you'll need through your retirement can be tricky.
It’s easy to look back on your spending while you were working, check your expenses and get an accurate estimate of how much your lifestyle cost you. But looking ahead can be much harder.
The life you live in retirement can be quite different, and so can your expenses. When you first retire you might explore all sorts of options. You might travel, enrol in new activities and courses and maybe even move home.
Retiring with a healthy superannuation balance gives you the freedom of time to enjoy new activities, but they do cost money and it will have an impact on your budget.
While regular income from your employer may have stopped, this can be replaced with a retirement income stream, such as a TelstraSuper RetireAccess account. One of the challenges many retirees face is working out the level of income to draw from their retirement income stream. It can be a balancing act between making your super last, choosing the right investment strategy, and enjoying yourself.
Research has shown that many Australians, even those with a healthy super balance, are taking a very cautious approach and withdrawing only the minimum amount from their super*. It’s being labelled the ‘scrooge’ approach – avoiding spending their super because they’re worried it won’t last the distance.
Interestingly, most retired TelstraSuper members with a TelstraSuper RetireAccess account have realised that nominating to take an income based on their personal situation is a sensible option.
It’s a strategy many experts are recommending – balancing your living expenses and how you want to spend your retirement with a balanced investment strategy. This assists you to preserve and grow your capital in retirement to helps make sure your super lasts for as long as you’ll need it.
Getting the balance right
How much do you need?
Your expenses are different when you retire. On one hand, you no longer need to worry about the costs of transport to work, a ‘professional’ wardrobe and many of the other expenses of work. On the other hand, your new hobbies and interests will have their own costs which need to be factored in. It’s worth knowing that your living expenses tend to reduce as you get older. Your peak spending years are likely to be in early retirement when you might be travelling, possibly renovating your home or moving and taking on new activities. As you get older these costs tend to reduce as we tend to spend less on transport, entertainment and travel but more on support and medical expenses. In fact, various reports estimate that retirees in their mid 80s and older spend up to 10 percent less than younger retirees†.
How should it be invested?
Preserving your capital and helping it continue to grow can be a key priority. The focus on preserving is often the reason why many retirees are reluctant to tap into their super and only withdraw the minimum amount from their retirement income stream. But just because you might be retired doesn’t mean your funds all need to be invested in a conservative option. It’s important to keep the money in your retirement income stream working for you. Often retirees find a bucket strategy helpful with a proportion of funds invested for short, medium and long term goals to give their funds the greatest chance of continuing to grow.
Review your investment options online
How long does it need to last?
None of us have a crystal ball so it’s impossible to answer accurately how long your super will need to last. However, many Australians retiring today will live for more than 20 years‡ and most retirees want to make sure their super lasts. It’s this ‘longevity risk’ and fear that their money will run out that makes some retirees choose a very cautious approach. It’s worth remembering that as your super does reduce you may become eligible for the Government Age Pension to supplement your income. Our online retirement income projector can show you how much money you may have when you retire.
How to work it all out
TelstraSuper Financial Planning can help you work out the best ways to manage your super in retirement. If you'd like to discuss your retirement plans or if you have any other financial advice queries contact us on 1300 033 166. There’s no additional charge for our phone based service as this is included in your TelstraSuper membership.
*Milliman Retirement Expectations and Spending Profiles analysis based on spending of more than 300,000 Australian retirees
†Milliman Retirement Expectations and Spending Profiles analysis based on spending of more than 300,000 Australian retirees
Plus Association of Superannuation Funds of Australia (ASFA) Retirement Standard 2018
‡Australian Bureau of Statistics, Residual Life Expectancy at age 65 – males 19.1, females 22.0, dated 2010-12