Can you afford to retire, 2023?

Written on the 14 August 2023 by Parkside InvestorPlus

Australians are now living longer, the most recent data shows that a male’s life expectancy is 82 years and a female’s is 85.6 years.

Entering retirement phase has traditionally been a time when you ‘hang up the boots’, when you now turn your attention to all those things that you’ve neglected during your working life; picking up a new hobby, spending more time with your family and doing the things you love, less stress and of course travel.

While the ‘dream’ of retirement feels good, the worrying issue is that many retirees coming into this stage of their lives don’t have any idea on how much income they need to retire.

With current high inflation coupled with many Australians entering their retirement phase still burdened with mortgage debt, the possibility of retirement stress and anxiety is now a real thing.

As a retiree, chances are that you may no longer work, and your retirement income may not be rising at the same rate of inflation.

This can lead to retirees underspending because they are worried about the purchasing power of their income and equally important, how long that’s going to last – and if any surplus can be passed on to their beneficiaries.

Without casting any blame, retirees have become accustomed to low inflation for the past decade – inflation during this period was not really an issue.

In the December quarter of 2022, according to the ASFA Retirement Standard, to fund a comfortable lifestyle for a couple aged 65–84 rose 7.5 per cent in the past 12 months, now standing at $69,691. 

If you are still in your working phase of life, you may be able to cope and somehow compensate with the hope that inflation will be brought under control and your wage grows at a higher rate over time, (remember rising interest rates also play a part in this scenario, even if they may have stabilised for now as at July 2023).

However, if you’re in your retirement phase or fast approaching it, for many Australians, any cost of living increase simply puts pressure on their standard of living.

There are many publications/articles that say if you plan to keep enjoying your current lifestyle when you retire, our experience tells us you’ll need to save enough to provide you with at least 70% of your current annual income.

The Association of Superannuation Funds of Australia (ASFA) reports regularly on the annual cost for singles and couples to achieve either a modest or comfortable lifestyle – while the numbers change on a regular basis, one thing is sure, given inflation has now reared its head, our cost of living has started to creep up.

In order to live a modest or comfortable lifestyle, you will need;

The above numbers continue to evolve given the rising cost of living and age care needs.

To put these numbers into perspective; a modest lifestyle allows you a basic private health care plan with limited gap payments a cheaper/older basic car.  Also, budget haircuts, limited meals at inexpensive restaurants and possibly an annual trip.

And while there are ways of stretching your retirement dollar, there are many actions you can undertake to ensure a successful retirement.

Here are some practical and pragmatic steps you undertake well before you reach retirement to ensure those wonderful years are as stress free as possible.

Fully understand your finances and financial goals

The first step in planning for your retirement is to have a clear understanding of your debt situation, income, assets and ongoing expenses.

How much income you need to retire on depends on your lifestyle aspirations as per the table above, or more!

Start saving for your retirement

Simply relying on your employer’s super guarantee of 11.0% or 12% or whatever the figure may be in the future, may not be enough.

Salary sacrificing your pre-tax income into your super fund offers substantial tax benefits, with amounts taxed at 15 percent – far lower than the tax on employment income.

Obviously, it’s best if you can enter your retirement phase as debt free as possible.

Pay down high-interest debt.

Save tax refunds and bonuses.

Ensure you have adequate health insurance – recent research estimates that an Australian couple will face yearly healthcare costs of between $4,975 and $9,900 in retirement.

Retirement trial run

Even if you're in the group that's looking forward to their retirement, you could find that it's not all that it's cracked up to be when you do get there - the reality has not met the expectations.

Just as you might take a car for a test drive before deciding on buying it, why not take your retirement out for a test drive? 

Finally, if you haven’t already, make sure you’ve engaged a reputable, trustworthy, and experienced financial planner.

So, is it possible to retire earlier than 65 or whatever the age, the answer is YES.

However, it requires planning and a solid direction.

Your financial planner is your financial coach – they will make sure you stay on track with your financial goals and that you are financially, mentally, and emotionally ready for retirement.

Parkside InvestorPlus has guided clients into, and in, their retirement with the minimum of financial and emotional stress by putting in place practical and financially sound strategies.

Contact us or call us (02) 9899 4899.