Transitioning to retirement: Can I afford to retire comfortably?

Jan 17, 2023
In order to enjoy everything that comes with retirement, you need enough money to retire. Source: Getty Images.

Enjoying retirement can mean different things to different people, as everyone has their own unique interests and preferences. Some people may choose to travel and explore new places, while others may prefer to focus on hobbies or volunteer work.

Some retirees may also choose to take up new activities such as learning a new language, or taking up a sport they’ve never played before.

Overall, retirement is a time to focus on doing things that bring you joy and fulfilment, whether that be spending time with loved ones, pursuing creative or intellectual interests, or simply relaxing and enjoying your free time.

However, in order to enjoy such things there is one caveat: you need enough money to retire.

There are several factors to consider when determining if you have enough money to retire such as your current financial situation, expected sources of income in retirement, estimated expenses, and how your anticipated retirement lifestyle will impact your expenses.

It’s also important to consider such factors as the impact of inflation, taxes and to ensure you have a detailed plan in place in the event of unexpected expenses.

According to Sydney based Wealth Coach Andrew Woodward from The Investor’s Way, “determining whether you can afford to retire is simply a factor of whether you have enough assets to support your desired lifestyle.”

“It is important to know up front that there is no one answer, and there are a few unknowns that complicate the answer,” Woodward says.

“Such as how long are you going to live, what physical condition you will be in and what assistance will be available at the time of your retirement?

“These unknowns should be a further incentive for you to take control of your money as soon as possible.”

In an effort to sift through “unknowns”, Starts at 60 spoke further with Woodward and Founder and CEO of Stockspot, Chris Brycki in order to offer a clear as possible assessment regarding how much is needed to retire comfortably, how to best financially plan for retirement and most importantly if you can kick up your heels and enjoy retirement sooner rather than later.

Assessing retirement finances.
Source: Getty Images.

How much money do I need to retire?

Retirement can often be a time of financial uncertainty, given that many people are not sure how much money they will need to maintain their standard of living or how long their savings will last.

As mentioned earlier, factors such as inflation, changes in healthcare costs, and unexpected expenses can all contribute to this uncertainty.

Additionally, retirees may also be impacted by changes in the stock market and interest rates.

Despite the ongoing uncertainty associated with retirement finances, Woodward explains that “the most common way to determine how much you require for retirement is to identify your monthly expenses, annualise it (multiply by 12) and then multiply that by 25.”

“For example, if your monthly expenses are $10,000, your annualised amount would be $120,000 meaning you would need $3,000,000 in assets to meet your costs in retirement,” Woodward explains.

“This method is a reasonable way to estimate what is required if you have time to grow your assets. If you are closer to retirement and don’t have as much time to accumulate the required assets, you may want a more precise calculation.”

In order to arrive at a “precise calculation”, Woodward offered his “financial freedom number calculation”.

“Again you start with determining your monthly expenses, which should include any planned future expenses. The planned future expenses are the ones that are irregular but known, such as Christmas gifts, birthdays, holidays and home maintenance,” Woodward says.

“Once you have the monthly expenses you again annualise the amount. This is where the calculation becomes more detailed.

“The next step is divide the annualised number by 0.70 to account for an approximate tax rate of 30%. This tells us how much you require from your assets after tax to meet your expenses.

“Next you divide the result from above by 0.08 or 8%. We use 8% as a conservative estimate of what you can earn on your assets.

“Using the same $10,000 monthly living expenses from the earlier example, the annualised amount remains $120,000, which becomes $171,430 before tax and $2,142,860 in assets to meet your expenses.

“As you can see, if you are closer to retiring, this more precise method shows a better outcome. Obviously if you can earn more the number required is less, and if your living expenses can be less in retirement, which is likely, then the number will be less as well.”

Knowing how much you need in retirement depends somewhat on “how you define comfortable” and “how long a person is retired”, according to Brycki.

“The amount of money needed to retire in Australia can also vary based on a number of factors, such as your lifestyle, location, and the level of government support you are eligible for,” Brycki explains.

When getting an estimate of the amount of money one will need to retire, Brycki points to organisations such as the Association Superannuation Funds of Australia and the Retirement Income Review as a good guide.

“According to the Association of Superannuation Funds of Australia (ASFA), the average single person needs $545,000 in superannuation savings to fund a comfortable retirement, while a couple needs $640,000,” he says.

“The Australian Securities and Investment Commission (ASIC) suggests that retirees will need to have an income of around 67% of their pre-retirement income to maintain their standard of living.

“According to the Australian government’s Retirement Income Review, a single retiree would require a lump sum of around $540,000 to achieve an income of $42,000 per year, while a couple would need around $640,000 to achieve an income of $58,000 per year.

“It’s important to note that these are general estimates and your retirement expenses and savings needs may vary.”

Financial planning for retirement.
Source: Getty Images.

How to financially plan for retirement

In the wise words of Benjamin Franklin, “if you fail to plan, you are planning to fail” and such sage advice certainly applies to setting yourself up for retirement.

It is important to plan for retirement because it helps ensure that you will have enough money to maintain your standard of living throughout your retirement years.

Without proper planning, you may find yourself struggling financially and having to make sacrifices in your later years.

More importantly adequate planning can offer some much needed peace of mind and allow you to enjoy your retirement.

Woodward explains that “for soon to be retirees, there are a few important steps that you can take to prepare”.

In addition to putting money aside for retirement, Woodward extols the value of estimating your future spending.

“It is a reasonable assumption that your spending in retirement will be different to what it is while you are still working,” he suggests.

“For example, your commute costs will be less. Therefore, it is important to understand your current spending and then estimate what will change when you retire.

“Knowing your future spending requirements will be the foundation for all future retirement decision making.”

Another area to consider when planning for your retirement is calculating what assets you need to meet future spending requirements.

“Calculate how much in assets you will need to generate the income required to meet your living expenses,” Woodward advises.

The final step that Woodward promotes when it comes to retirement planning is to “assess your current asset position”.

“Once you know the value of assets you will need, assess your current position,” he says.

“It is also important to understand what your assets are currently generating in returns. This will include understanding how much you have in Superannuation assets, how much you can draw from these assets annually, and also potentially if you are entitled to any government assistance to supplement your income.”

In addition to such crucial measures, Brycki suggests “reviewing your superannuation”.

“This includes checking the fees, performance and insurance cover of your superannuation funds and considering consolidating your superannuation funds to minimise fees,” Brycki says.

Brycki also highlights that “it’s important to understand the age pension and other benefits available from the Australian government, and how to access them” while promoting the value of “seeking professional advice”.

“For many people it’s worth seeking advice from a financial advisor to help you create a comprehensive retirement plan and make the best decisions for your financial future,” he says.

“Planning for retirement is a lifelong process, and you should review your plan regularly to make sure you are on track to achieve your goals.”

Planning expenses for retirement.
Source: Getty Images.

Can I afford to retire now?

Although you may want to kick up your heels right away and enjoy the freedom and joy that comes with retirement, retiring today may not be a realistic option just yet.

When calculating when you can finally spend the majority of your days lazing on the beach or enjoying more time with your grandkids, Woodward explains that “the key determinant for all of your decisions is your monthly expenses, and planned future expenses.”

“I use a money planner to help track these numbers and automate the management of them to ensure you are not overspending,” he says.

Another consideration Woodward advises for retirees is to determine”whether there is any casual or part time work you could do to supplement the income from your assets, without having to continue working full time.”

Before commencing your post work life and enjoying the fruits of their labour, Brycki suggests that soon to be retirees, “consider any outstanding debts, such as mortgages or credit card balances, and how you will be able to pay them off in retirement.”

On a final note, Brycki urges people to envision what life looks like in retirement and to ask “what’s your desired lifestyle in retirement, including hobbies, and other leisure activities, and whether their income will support it.”

Enjoying retirement now.
Source: Getty Images.

Who can help me with my retirement?

Whether or not you should seek out help with your retirement planning depends largely on your individual situation and financial needs.

If you feel confident in managing your own finances and have a good understanding of investment strategies, you may be able to plan for your retirement on your own.

However, if you are not confident in your ability to plan for your retirement, or have complex financial needs and goals, it may be beneficial to seek out additional assistance.

Woodward explains that “for those that are looking for additional assistance to determine whether you are able to retire, and what you are entitled to in retirement” there are a number of options open for consideration.

“Speak to your accountant who can assist with calculations, assistance packages and tax planning,” Woodward suggests.

“Visit the Centrelink website at to establish if you are entitlement to any pension payments.

“Speak to your superannuation fund to understand what is required to access your super when you need it.”

Brycki says “there are a range of different services available to Australians who are looking to make informed decisions about retirement”.

“The Australian Government’s Department of Human Services, which provides information on financial assistance and support for retirees, including the Age Pension and other benefits,” he says.

“The Australian Securities and Investments Commission (ASIC) provides resources and tools for retirees, such as the MoneySmart website, which offers information on superannuation, investment options, and financial planning.

“The Australian Taxation Office (ATO) offers information on the tax implications of retirement, including the aged pension and superannuation.

“The Australian Association of Superannuation Funds (AASF) is a professional body that represents the interests of the super industry, and provides information and resources for retirees and those planning for retirement.

“A financial adviser or investment adviser can provide retirement planning, superannuation and investment advice and help you make informed decisions.”

On a “final note”, Woodward  advises “soon to be retirees seek education while you are earning an income so you can be an active manager of your money and assets when you do decide to retire”.

“Nobody cares more about your money than you do, so having the money management and investing knowledge to derive the best returns from your money is the best way forward,” Woodward says.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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