How long are we going to live and what will that cost?

None of us know how long we are going to live, which makes it hard, even for professional planners, to know how much money we are going to need in retirement.  Then, when we enter retirement most people don’t know how long their money is going to last them from that point on.  Sure, they have a speculative view, based on assumptions and data.  Maybe they have even consulted a Financial Planner for some advice that is individually tailored to them.  But have you considered whether you fit into the “classic” situation that many people nearing retirement today do? Could you consider an “off the shelf” retirement product?  Is this something you even knew existed?

All of us need to brace ourselves in the knowledge that we are likely to live longer than our parents did.  When we retire at 65, we could well have 20 years or more to finance our way through.

Numbers vary slightly and the most recent is more than a year old, but the average Australian, aged 65 has around $160,000 of superannuation at their fingertips, and, let’s face it, this is their life savings and for most, the only source of income for both life and leisure other than a pension. Generally, the average female super benefit is around 30% less than that of males.

Remember that your retirement income includes any super benefit you have plus other sources like the Age Pension, investments outside of super and so on. You need to plan your retirement strategy taking all these things into account.

Nonetheless, if you have a super benefit, you want to make the most of it – to receive a regular income for as long as possible. But do you need an individual strategy from a financial planner to achieve this?  Or could you make your income through investment of some capital into an account based pension product with a benchmarked strategy for investment that would be incredibly similar to what the average person gets from a Financial Planner, without all the complexity and “personalisation”?

It has to be asked, after the disappointing Financial Planning scandals of late whether the same or similar outcomes can be achieved through a standardised product that is benchmarked against the advice of major Financial Planning groups.  Equip has just released a product called “Equip MyPension”, an account based pension product that does this. And there is much talk in the superannuation marketplace about the creation of similar types of products over coming months and years.

What if you could get the benefits of a financial planner, built in to a product without having to pay the planner yourself?

But what do we need to understand when we calculate out earnings and develop our strategy for retirement:

– The life expectancy of the average Australian is between 79 and 84 years of age.    If you retire at 65 years old, that could be approximately 19 years through which you have to fund yourself.
– The average person, aged 65 has a Superannuation fund of  around $160,000 and this, with a 7% pension can provide an annual income of $11,000 for as long as your super lasts.
– If market returns in your pension fund grow at above this 7% in the year you could see your pension balance increase.  For example, if you had Equip MyPension in the 2013-14 financial year, with the investments allocated across the cash, conservative and growth investment buckets, as prescribed, you returns would have been around  9.5% (taking into account that you would be drawing a regular income from your Cash bucket.
– In a pension product like this, your super benefit is pooled with others and invested in a benchmarked and standardised approach,  based on an established financial planning strategy.

So tell us, could this type of approach be of interest to you? 

This article has been sponsored by Equip Super.  All information has been prepared independently, by an independent writer at Starts at Sixty and presents interesting insights we feel, for our audience to understand.  For more information about Equip Super’s My Pension products please visit www.equipsuper.com.au/mypension.