Good to Great: How to Scale With an Outsourced CFO

You may have heard advice gurus recommend that you save a million dollars (or some other nice round figure) to retire comfortably. It sounds legitimate, but unfortunately, there is no one-size-fits-all amount people need for retirement.

The amount you’ll need depends on several factors: personal circumstances, financial resources (both inside and outside your super), family obligations, health and lifestyle. So before you focus too much on a magic number, zoom out and look at the big picture.

While it’s best to work out your retirement savings targets with your wealth adviser, you can also use these ASFA benchmarks to arrive at your personalised amount.

 

Whether You Own Your Home

Owning your home outright before you retire provides you with several attractive benefits. First, you’ll have somewhere to live rent-free. Second, you’ll be insulated from rising housing costs, and anyone who has been paying rent in Australia lately knows this is no joke.

The Grattan Institute reported that in 2018, retired homeowners spent just 5% of their income on housing on average. In comparison, retired renters spent 30% for their homes. All told, the report calculated that homeownership is worth $23,000 each year for retirees! What could you do with $23,000 when you don’t have to spend it on rent or a mortgage?

Clearly, paying your mortgage off before you retire allows you to reap some incredible benefits. You won’t have to plan on spending as much during your post-retirement years.

 

Where You Live

Whether you rent or own your home determines a great deal about your retirement spending, but another critical factor is where you choose to live. Most people assume that it’s cheaper to live in the country than in the city, and it turns out, they’re right.

Research published by Milliman reports a 7.3% gap in spending between retirees living in the city and those living in the country. And that’s not the only difference. Some states are more expensive than others. Canberrans lay out 15.9% more than the national average while those in rural South Australia spend the least, 10.5% less than average.

Some people want to quit the suburbs and move right into the heart of the city when they retire for easy access to restaurants, events and easy transportation. If this sounds appealing to you, you may need to save more than average. On the other hand, if the quiet life is calling for you, you may be able to save a bundle on your living expenses during your golden years.

 

What Other Assets You Have

People tend to overlook assets outside of their supers when talking about saving for retirement. Take a holistic approach to your retirement planning by looking at the big picture. Superannuation is critical, but other investments can play vital roles in your plan.

Real estate, for instance, can provide consistent cash flow during your retirement years, supplementing the income you receive from your super. Some retirees even rent out spare rooms or granny flats, taking advantage of assets they already have.

 

 

How Much Your Super Grows

Fortunately, the amount of money you have when you arrive at your retirement age isn’t the end of the story. After you retire and begin drawing on your super, the value of the investments in your savings should continue to grow. The higher your rate of return, the longer your savings will last.

While it’s not possible to predict how markets will perform, you can increase your chances of earning a healthy return on your investments by balancing your mix of investments and managing your level of risk. By monitoring your super, your wealth adviser can help you to stretch your savings out during your retirement years and make them work for you while you enjoy your well-deserved leisure.

 

Whether You’re Eligible for the Age Pension

Australians over the age of 65 may qualify for the age pension if they meet the requirements of an income and assets test. Even if you are eligible for the age pension, you won’t be able to access the benefits until you meet the pension age. For those born after 1965, the age has increased to 70. If you’re planning on retiring early and expect to collect the age pension, adjust your calculations to compensate for the years before you qualify.

 

Whether You Want to Leave an Inheritance

Some retirees want to leave an inheritance to children, loved ones or favourite institutions. If this is a priority for you, you’ll want to plan for it in your retirement savings calculations.

Here’s another consideration: if you have a dependent who currently relies on you for financial assistance, you’ll need to include those unique needs in your calculations. You may also want to talk with your adviser about forming a trust to manage your dependent’s needs through your estate after you’re gone.

 

Start With the Basics

ASFA has calculated a ballpark figure of how much you’ll need to save for the years you spend in retirement.

Couples

Modest Lifestyle: $40,560 per year

Comfortable Lifestyle: $62,269 per year

 

Singles

Modest Lifestyle: $28,165 per year

Comfortable Lifestyle: $44,146 per year

 

These figures assume that you own your home and have personal assets of $25,000 or less. They also expect 2% inflation and a cost-of-living increase of 1.2% per year. Using these estimates can be a great starting place for calculating how much you need to retire, but don’t stop there. Personalise your retirement planning, so it fits your needs perfectly.

For help creating a customised plan, set up a consultation with one of our expert wealth advisers. You’ll no longer have to wonder if you’re saving enough for retirement. Get in touch today!