Retirement is a time to enjoy a lifestyle you've worked hard for. It can mean greater financial freedom, time with the ones that matter and hopefully some memorable holidays... if you're on top of your finances.
One of the most common questions downsizers ask is “how much do we need to retire and live comfortably?”
Throughout your career, you’ve worked fervently to build a large enough nest egg to ensure that you’ll always live comfortably. If you’re preparing for retirement, here are some important tips to consider.
A well-planned retirement plan can greatly improve your chances of retiring comfortably. It also determines your upcoming income goals and the decisions you need to make to achieve those goals.
When you’re planning ahead think about the lifestyle you want:
How would you like to retire?
Do you want to fully retire or move into part-time retirement?
Do you want to run a small business, volunteer for nonprofits, learn new skills, or spend more time with family?
What would you like to do during your retirement?
Fly cross-country or become a nomad?
Play golf or indulge in creative hobbies?
How would you like to spend the funds on these activities?
What constitutes a comfortable retirement for you?
The Association of Superannuation Funds of Australia (ASFA) estimates that the approximate amount needed at retirement to support a comfortable lifestyle is $545,000 for a single person and $640,000 for a couple.
A comfortable retirement lifestyle is one that enables older, healthy retirees to engage in a range of recreational and leisure activities. It’s important to have a good standard of living by purchasing important household goods, private health insurance, a reasonable car that can be maintained easily, good clothes and a range of electronics. Plan for occasional travel both domestic and international.
Assuming that your home loan is fully paid and you aren’t drawing down on the capital, there are several formulas that can be used to determine how much you need to retire comfortably.
It’s best to invest wisely and live on those investments in retirement without drawing down on capital. To do this, make sure you own your home outright with investments that are 20 times your target annual income. A financial advisor will be able to provide tailored advice for your circumstances.
Let’s say you need $50,000 per annum to retire - you should target $1 million in savings.
A common suggestion is that an Australian couple needs between $65,000 to $85,000 per annum for a comfortable retirement. The amount can vary depending on the lifestyle of the couple. If you’re accustomed to a high standard of living, face health issues or have a chance of facing certain health issues in future, the suggested figure for retirement can increase significantly.
Here’s a very basic guide that outlines the targets an Australian couple should aspire to live a comfortable retired life without drawing down on capital:
$1 million — basic retirement + surplus for emergencies
$2 million — comfortable retirement in most circumstances
$3+ million — an ideal amount required for total comfort for couples with high living standards
Once you have determined how much you might need to retire, you should formulate how to best reach that goal.
One of the simplest options is to top up your super, up to the $27,500 concessional contribution cap. These contributions are taxed at 15% when they enter your super so it increases how much you have in super and provides significant tax relief.
You can make additional non-concessional contributions of $110,000 per annum (over the $27,500 concessional contribution cap) from savings, investments held outside of your super or even an inheritance.
For most employees, non-concessional super contributions are a part of their salary package before the taxes are applied. When this money goes into your super account, the tax concession is at the low rate of 15%.
Many empty nesters and retirees opt to downsize to create greater financial freedom. Consider downsizing your family home to unlock additional funds.
Unlock equity from your current property
Give your super a boost under the government's Downsizer Superannuation Contribution scheme
Reduce your ongoing maintenance costs and more.
Homesuite specialises in helping homeowners downsize, reducing stress and uncertainty at every stage. We’ve partnered with Australia’s largest retail wealth advisor to support Homesuite customers in making the right decisions for their circumstances.
It’s crucial to consider which super fund will help you grow your super the quickest, in line with your risk appetite. Choose a super fund that doesn’t whittle away your funds with ongoing investment and administration fees.
Ensure that you aren’t paying for redundant insurance policies that don’t provide the expected coverage. Unnecessary insurance costs can erode your super balance, impacting your investment returns.
Consolidate your super to avoid doubling up on administration fees and maximise the amount you have to invest. It’s a good idea to consult a financial advisor to help guide your decision-making and avoid unintended consequences.