So you’re thinking about retiring?
You’re looking at your finances, and you’re asking yourself how much is enough money for me to afford to retire on?
If that sounds like you, then trust me – you’re not alone.
Most of us ask ourselves how much is enough money to retire with?
The truth is, the answer isn’t black and white.
In fact, how much is ‘enough’ depends on how much you’re comfortable on and what your costs are.
Just ask the experts!
Head of Advice at Dixon Advisory Nerida Cole said there’s a lot of variation when it comes to determining how much is ‘enough’ to fund your retirement.
She believes reviewing your budget and working out your expenses is the key part of coming up with the ‘enough’ figure for you to retire.
“In the years just before your retirement, chances are your mortgage is significantly reduced and in most cases the kids are out of home,” she said.
“You should be looking at these things as they start to reduce and allow yourself to see what your core expenses are.”
Those core expenses are an important part of the budgeting process and will help you work out how much is ‘enough’.
So what are your core expenses?
Things such as your debts, health costs, bills, eating out and travel costs all form your core expenses.
Nerida advises that when budgeting, you should always make sure you have enough to cover those core expenses.
“Then you should look at what you’d like to do – holidays, renovations etc,” she said.
“When you retire the extra travel costs of going to work you’re likely to replace with holidays and short trips with family.
“The Association of Super Funds of Australia (ASFA) found with their research that when you reach the later stages of retirement – from 80 onwards the costs of living don’t come up too much.”
What about your health costs?
Well, statistically if you’re a 65-year-old woman, you’re likely to live another 22 years on average.
“The fact your cost of living ease in the later years will offset some of what you might expect with health costs,” Nerida says.
“But if you do have a health condition, you do need to make sure those cost are catered for.”
So you’ve done some sums and you’re worried you won’t have enough to retire on?
Nerida suggests this solution to you concerns.
“If your savings are not going as well, you’re not saving as much as you thought or your earnings are not as high as predicted, you have the flexibility to extend your working life,” she said.
“You may need to work a few more years than you thought or reduce your expenditure and make some savings.”
Working on a part time basis can also help give you extra money when your retire, as well as keeping you engaged and mentally challenged.
You should also be sure to check your eligibility for the aged pension.
Nerida also advises to start planning for retirement as early as you can.
Apparently, the earlier you plan, the more time you have to ensure you have ‘enough’.
“I would say it’s important to talk to someone as early as possible,” she advises.
“Start making some decisions about when you want to exit work.
“Putting your money away as early as you can is good from a compound interest point of view – it’s a lot easier than trying to save after retirement from a fixed income from your super or aged pension.”
Experts like Nerida recommend you look at guides released by associations such as ASFA to get an idea of your ‘enough’ figure.
“ASFA’s figures show at age 65 a couple will have a comfortable standard of living if they have a combined income of close to $59,000 to live on per year,” she said.