How to make your savings last through retirement

While it’s a no-brainer that spending less than what you earn is a quick and easy way to ensure you’re money last as long as possible, it’s arguably more suitable for young people and not for retirees on a fixed income.

Most people over 60 realise from lengthy financial experience that when your income drops, you need to adjust your spending patterns as well because although you might have retired with a decent superannuation balance, it can quickly fall if you don’t get a handle on your spending.

Understanding how others navigate this transition and the availability of financial tools to assist can be beneficial. Start at 60’s community of financially informed individuals offers useful advice on monitoring your expenses, which we’ve outlined below. Additionally, we’ll explore how your superannuation fund can support you in maximizing your savings.

Projecting your spending in retirement

Three of the biggest expenses most families have to deal with are housing, transport and food. As retirement approaches, that shifts, with housing and health topping the list. That’s reflected in the way Starts at 60 readers approach their retirement planning.

Many reports have factored in the cost of future-proofing their home or renovating to make their property safer or more energy efficient when doing their retirement budget spreadsheet, while others have done the sums on downsizing to see how it impacted their projected retirement spending.

Likewise, financially astute readers recommend considering the costs of health care – whether that be budgeting for private health insurance or putting aside savings for treatments or therapies you think you may need – when projecting spending in retirement.

Speaking of budgets, retirement day isn’t the time to draw one up. Instead, the Starts at 60 brains trust suggests that working out your budget should be an ongoing process, best started well in advance of retirement.

One Starts at 60 community member, says tracking expenses before you retire can help identify the unexpected costs that crop up from time to time. The process also works as a good test to see if your retirement budget is realistic, she adds.

“I’m now working on a very tight budget to see how that goes while we have a pretty normal income, to work out the minimum we need to live on after retirement,” she says.

Sharing the same sentiment, another community member adds that it’s not even worth bothering to go through old bank statements.

“Start keeping a record, in a diary perhaps, of how much you spend each day, and what you spend it on, for a few weeks,” they advised.

“That will give you a pretty good idea of your average spend on, for example, groceries, meat, fruit and veg. Once you’ve done that, do the same for other items of expenditure.”

Don’t forget to consider the smaller, less essential outgoings that over time can add up to a surprisingly large sum. In a survey, Starts at 60 readers reported regularly outlaying cash on entertainment, holidays and, of course, the grandkids.

Having to scrutinise your weekly spending can be confronting, but it can also identify where you might be able to make savings. And there’s always a chance your budget could overestimate your spending needs. One reader found she’d budgeted too generously, allowing her to cut back on the amount she needed to draw down from her super once she’d retired.

She’s not alone. Although living on a fixed income for a long period may seem daunting as retirement looms, many readers find that the budgeting skills learned over a lifetime mean they’re still able to save, even in retirement.

In fact, almost  50 per cent of readers responding to the same survey said that they continued to prioritise saving, even in retirement, and did so by putting aside money from their Age Pension, super income and investment returns, as well as by “spending less on the little things”.

Expect the unexpected

If you’ve done your homework, you’ll be able to cover the unexpected expenses that come along. But what if your income drops? Suppose you’re relying on fixed deposits, and the bank cuts interest rates? Or do you rely on rental income and can’t find a tenant?

Gemma Pinnell, the director of strategic engagement at Industry Super Australia, says super can add some certainty to your retirement income.

You can do this by setting up an account-based pension, which allows you to draw down an income from your super savings while keeping most of the balance invested. Because the balance remains invested, it has the opportunity to increase through investment returns and thus potentially provide you with an income for longer.

“If you’re receiving an account-based pension from your fund, your regular payment doesn’t vary, which means you can budget from month to month, knowing your income’s going to be in your bank account,” Pinnell explains.

“And although super returns will vary depending on the investment option you’ve chosen, Industry SuperFunds have consistently provided investors with solid returns, on average well above those of the bank-owned retail funds.”

If you’re currently in a retail super fund, you can see how an Industry SuperFund’s returns and fees compare against your fund by using an online fund comparison tool.

If you’re not sure how much income you’ll need when you retire – particularly if you’ve got your eye on a boat, new car or holiday – it’s worth considering trying out an online retirement income calculator.

And if you’re concerned that even with careful budgeting and smart selection of a super fund, your savings might not last the distance, you can read more about how to stretch your income even further here. We also have helpful tips on budgeting that you may want to check out for further inspiration.