Not everyone will retire with buckets of self-managed superannuation. In fact, many of today’s baby boomers are likely to be somewhat dependent on the Age Pension when they retire. But if you have a few savings up your sleeve, a bit of debt to pay off and can see your retirement approaching, how much do you think you’ll need to retire modestly?
If you are one of the average baby boomers approaching retirement with a lower than hoped superannuation balance $197,000 for men and $105,000 for women there is still a reason to plan and manage this carefully. And one of the best strategies for the average retiree looking forward is to set their plans around an “Age Pension plus” strategy.
At today’s rates, the Age Pension is the bare minimum one could modestly live on, but with additional savings invested correctly, retirees can enjoy a more comfortable living standard for the 20-30 years they are expected to need.
For couples, we often ask people to assess their ability to set themselves up with an annual income equivalent to the maximum “Age Pension plus ten”. That is, we like a retiree reliant on the Age pension to use some of their capital to pay down remaining debt then look to access income equivalent to the maximum Age Pension plus a drawdown of $10,000 per year from their investments.
For singles we often target an annual income of “Age Pension plus seven” that is, income equivalent to the maximum Age pension plus $7,000 per year.
The outcome is that they retiree will receives a regular pay cheque which is 30% higher than the a retiree solely reliant on the Age Pension.
To provide for this increased pay cheque, a retiree would require an approximate superannuation of $344,000 for couples and $241,000 for singles with a life expectancy of a further 30 years in retirement.
How do we work with retirees to do this? There are three simple strategies we explore:
For couples or singles with superannuation balances below these levels at retirement, they could consider aiming for a different target (eg. Age Pension plus five for a couple, Age Pension plus three and a half for a single) and/or utilise an active fund manager to provide some certainty.
Can you look forward to a modest retirement?
For more information contact MLC by clicking here.