A carefree comfortable retirement may cost a lot more than you think.
Unfortunately, the average Australian adopts a ‘carefree’ passive attitude when it comes to retirement – putting it off as something you need not worry about until years later down the track. But it’s this lax attitude which is a real cause for concern when it comes to retirement.
Jeremy Cooper, a superannuation industry expert, has done some calculations and found that a $1 million superannuation balance would only fetch roughly as much as the government pension.
The harsh reality?
In fact, a typical $1 million nest egg in the form of a lifetime income, equates to some $1,297 a fortnight.
“The brutal reality is that a fair price for an age pension in today’s interest rate environment is around $1 million,” Mr. Cooper said in a recent opinion piece in The Australian Financial Review.
“For that amount, a couple will get $33,717 of income a year. A comfortable retirement would cost more.”
What’s the solution?
First and foremost, we need to change our attitudes. We need to recognise that if you want to have a comfortable, relaxing retirement, then proactive action must be taken during your working career.
Mr. Cooper argues that Australians need to stop seeing their superannuation as lump sum payouts and look at their retirement savings as income they can safely generate. He says this is where the debate about superannuation tax concession can become misleading for most Australians.
“In the quest to ensure our super taxes are equitable, there’s the potential for heavy collateral damage to be sustained to a large cohort of the people we’re trying to help. These are middle-income households hoping to accumulate sufficient nest eggs to mainly self-fund a reasonable comfortable retirement.”
Why all the noise?
The Governments recent Intergenerational Report found that by 2055, Australian’s life expectancy’s would rise to 95.1 years for men and 96.6 years for women — hence, reflecting a greater need for more retirement planning.
It was the findings in this report, along with other contributing factors, that led to Mr. Coopers’ recent remarks.
“An important point to remember is the age pension is a safety net for those without the means to support themselves with dignity in retirement.”
So how much do you need for a comfortable retirement?
The answer will vary depending on who you ask. But according to Government figures, couples looking for a modest lifestyle would require a lump sump in the region of $412,000 whilst those looking for a more comfortable retirement will want at least $716,000.
Apart from these two broad categories, the amount you would require depends on your individual circumstances.
It may include factors such as, when do you want to retire; your life expectancy; the type of lifestyle you want to have post working career etc etc.
As an estimate, ASIC recommends that you assume you need two thirds of your pre-retirement income in order to maintain the same standard of living in retirement. But this estimate is only suitable for high-income earners.
What can I do now to improve my situation?
At a glance, there are several simple things you can do to improve your situation moving forward. They mainly center around being proactive and diligent with your current income & savings.
These are things we take very seriously, and for that reason, we’ve invested heavily in both our time & resources to create an online tool that can help you achieve your goals and realise your potential.
Head over to www.AmIPreparedForRetirement.com.au to get your personalised Freedom Report of where you currently stand, and how a strategy such as the purchase of a well-researched investment property can help improve that situation.
In addition, here are some other simple things you can do immediately to improve your situation:
Consolidate your missing super
Compare superannuation funds
Put new habits in place
Review your current saving habits