13 May 2016

I’ve Just Retired. How Can I Make My Super Last?

There are many ways to increase your retirement savings in order to enjoy a more comfortable retirement.

There are many ways to increase your retirement savings in order to enjoy a more comfortable retirement; however, the majority of these generally need to be started earlier in life while you are still earning an income and have the opportunity to invest some of that income in additional superannuation payments or other investments to boost your retirement nest-egg. But what happens if you get to retirement age and find that you may not have as much saved as you had hoped? What are your options then?

First of all, you need to understand that the retirement age, or age pension eligibility age, is merely an eligibility to retire, not a compulsory requirement (depending on your employer of course, they may have their own ideas about your continued employment past the retirement age!). Age pension eligibility means exactly what is says, once you reach the eligible age (currently 65, but increasing to 70 by the year 2035 under the current LNP plan) you can stop working and receive pension support from the government, so even if you have no savings at all, you will still have a basic level of income for the necessities in life. While the age pension does provide a certain level of security if all else fails, you really would be living on the bare necessities if that was your only source of financial support – even the maximum age pension for a single person is only $854.30, including pension and electricity supplements. Take out food, utilities and rent if you need it, and you won’t have much left to enjoy life.

Now, assuming that you have saved through investments in super, how much might you need each year? The Association of Superannuation Funds of Australia (ASFA) researches and monitors superannuation related data to provide an indication of the amount of income you need for certain living standards in retirement, and their most recent data indicates that to enjoy a modest retirement, you will need $23,489 per year (as a single person) or $42,597 for a single person to enjoy a comfortable lifestyle ($58,326 for a couple to do the same). As a comparison, the absolute maximum a single person could receive via the age pension, even with pension and electricity supplements, is $22,211.80 per annum.

As you might expect, ASDA defines modest as meeting the basic necessities, while a comfortable retirement allows a retiree to enjoy a wide range of leisure activities while also maintaining a good standard of living, including car, travel, private health insurance and good quality household items.

In order to consider what sort of lifestyle you can afford while still having your savings last, you need to consider how long you might live, as well as any additional savings you can expect during retirement. Life expectancy is obviously difficult to quantify, but it is better to have some money left over rather than finding yourself short – particularly at an age where you really don’t want to be scrimping and saving.

Regarding additional savings, your investments should reasonably provide returns between five and ten per cent (stock market average returns commonly sit at around seven per cent), so if you have $100,000 saved, you can expect between $5,000 and $10,000 per year in interest or dividends, $250,000 will give you $12,500 to $25,000 and $500,000 will return between $25,000 and $50,000. These figures are very rough, and the cost of living will obviously increase over time, but if you have $500,000 saved and invested, you should be earning at least the minimum amount for a modest lifestyle, and hopefully enough for a comfortable lifestyle, without having to eat into your principle savings at all!

But what if you have a smaller amount saved? In addition to your savings, you should also enquire about any assistance you may be eligible for, such as a Seniors Card or Commonwealth Seniors Health Card, which will save you on items like medications and public transport, as well as some utilities and retail outlets. The less you have in savings and assets, the more likely you are to be eligible for some of these benefits.

The key to making your savings last is to have a plan, beginning with making some decisions about your priorities. Taking time to enjoy a world trip after retirement may be a lifelong ambition, but you need to consider the impact something like that will have on your standard of living in the following years. Working out a post-retirement budget, allowing for your savings and any investment income, should allow you to spread your savings over your expected lifetime and maximise your enjoyment throughout. Keep in mind that the less you eat into you principle savings early on, the more income it can provide you with, so delaying some of your more expensive plans for a few years could have a significant impact on your lifestyle overall.

By Troy MacMillan