Can you ever afford to retire?
22 January, 2018 - 10:06 AM GMT

Can you ever afford to retire?

We are constantly bombarded with concerns about retirement and our concerns about our ability to live comfortably in later life seem to be growing. With the pension entitlement age continually being raised and changes to superannuation goal recommendations, we seem to be asking ourselves and those around us one questions … whether we will ever be able afford to retire?

Australia does not have a fixed retirement age. However, many people choose or need to wait until they are eligible for the Age Pension, which is currently set at 65.5 and will rise in stages to 67 till July 2023. The Government is currently proposing to raise this even further to age 70 by 2035 for both men and women. Even though Australians are living longer and are more active in their later years than they were previously, not everyone still wants to be working full-time at 70!

So what can you do to prepare for your retirement? First and foremost, it is important to establish what type of income you will have access to. For most retirees this will include super savings, Government Age Pension, investments, casual income or a combination of the above.

Currently the basic Age Pension is set at a maximum of approximately $808.30 per fortnight for singles or $1,218.60 per fortnight combined for couples. Unfortunately the Age Pension covers only enough for a modest retirement so you will need to combine it with your super savings and possibly a casual income to live comfortably and support your transition before complete retirement. It is also a good idea to keep your super within your super fund so it keeps working for you.

The Association of Superannuation Funds of Australia’s retirement standard index provides one of the best guides when it comes to identifying how much you’ll need annually in retirement. They calculate that for those aged around 65, the modest standard for a couple is $34,855 whereas for a comfortable lifestyle the budget per year would rise to $59, 971. For those around age 85 the costs drop slightly to $35, 186 and $55,115 respectively. ‘Modest’ living for example would not include most travel, top-end private health insurance and dining out. This index also assumes that your home is repaid by the time you retire. Once you have determined what sort of retirement you would like you can start setting the appropriate plans in motion.

You’ll also need to consider how long you’ll be in retirement and calculate the amount of years that you might need this income. With life expectancy continually rising in the Western world you need to account for a longer period of time in retirement. Unfortunately this is particularly challenging for single women who typically have smaller super balances due to career breaks and an earnings shortfall when compared to their male counterparts. Women also tend to live longer. The Australian Bureau of Statistics notes that for boys born today, the average life expectancy is 80.3, while for girls it is 84.4.

Men who are 55-years-old today can expect to live for another 27.7 years and women, 31 more years, according to the Australian Government Actuary. Each case will differ but on average it is wise to aim for 70% of your pre-retirement income in order to secure a comfortable retirement.

In order to bring your retirement forward you could also look into options such as downsizing your home for a vital lump-sum top up or selling your second car if you have one. This will save on expensive running costs.

Options such as these may help bring your retirement date forward so you can enjoy time off sooner than expected. On the other hand, if you feel it’s too soon to stop work, you could cut down to part-time in order to minimise stress while still earning a reasonable income. Every year that you push back retirement is one year less that you’ll have to fund but it is also one year less you’ll have to travel and simply enjoy life without the 9 to 5 grind. It comes down to personal preference and circumstances.

For young people there are now some more options in regards to how they use their super which might impact retirement goals. First home buyers will now be allowed to use up to $30,000 of voluntary superannuation contributions to place a deposit on a house or apartment as a result of the growing difficulty to enter the property market. Although this is a great step in order to support young people with their home-owner goals it may impact retirement timing for those who take advantage of this new policy. Younger Australians do need to engage in super earlier and understand the value and importance it will play in securing the quality of life they want in retirement.

You can use the super and retirement calculators on the ASIC website to assist with predicting the retirement balance you are on track for. By playing around with the input you can experiment with the balance between retiring early versus how well you can afford to live.