We all dream of a comfortable retirement. But what does ‘comfortable’ mean to you – and what will it cost? It can be a good idea to work that out. After that, you’ll be able to calculate how much super you’ll need to fund it.
When it comes to maximising your super and making it support your desired lifestyle, it’s never too early or too late to put some savvy strategies in place.
Here’s what experts say you need to consider when planning for life after work, and for making the most of your super after you’ve retired.
Stage one: pre-retirement
The first step to planning your retirement is to consider the sort of lifestyle you want. Do you plan to travel? Where do you want to live? Do you like to eat out a lot, or are you more of a homebody?
“I like to think about it in the sense of, how much income do you want to have?” says Dan Bridgland, a financial advice manager at CareSuper. “How much super you need is a result of the lifestyle that you want to live.”
Once you understand what you want from retirement, you can work backwards to figure out the super balance you’ll need.
A good starting point for figuring out those numbers is to take a look at the sums provided by the Association of Superannuation Funds of Australia (ASFA) or Super Consumers Australia. Both publish estimates of how much singles and couples need in their super for either a comfortable or modest retirement.
A more precise way to determine how much super you need would be to put together your own budget, says Craig Sankey, the head of risk and compliance at Industry Fund Services.
“Look at what you’re spending now, take off anything that you won’t have to pay in retirement, for instance your mortgage or travel costs for work, but add in any additional costs you might have, like extra travel or healthcare expenses,” Sankey says.
Singles will need more money than couples, per person, he says. “Take those ASFA numbers: their definition of a comfortable retirement is that you would need $690,000 as a couple, which is only $345,000 each. Whereas to live that same lifestyle as a single person, you would need $595,000 – so it’s quite a bit extra for that individual to save.”
Bridgland says this could be a great time to enlist a professional, such as a financial planner. If there is a shortfall between your balance projections and the retirement lifestyle you desire, they can help you with strategies to get on track.
Stage two: entering retirement
Every super fund gives you the choice of conservative, balanced or higher risk investment options. The vast majority of people, Sankey says, are in the default, balanced option. Some switch to a more conservative option in retirement. But it’s worth investigating what option is actually best for your circumstances.
“What’s happened in the past is people tend to go really conservative [in retirement],” Sankey says. “What they need to bear in mind is, these days, their retirement might last 25 or 30 years – that’s an exceptionally long investment time horizon. And so we caution people against going too conservative just because they’re retiring … you still need to have some growth investments within your portfolio.”
Your early retirement years can also be a great time to review any insurance you have with your super. Many of us take out insurance when we have young families to protect, but if your kids are now adults, you may feel you no longer need that cover. You might also want to check you aren’t still paying for income protection insurance, which you won’t need if you’re no longer working.
“As you get older, your life insurance and your total permanent disability cover can get quite expensive,” Sankey says. “It might be worth cancelling some of that insurance if it’s appropriate to do so.”
Stage three: retired
No matter how long you’ve been retired, it can be a good idea to regularly review your spending, Sankey says. Some people spend their super quicker than they planned, which might necessitate lifestyle adjustments. Others live more frugally than they need to in retirement, drawing only the legislated minimum amount from their super each year.
“Some people have been told to save all their life – so they’ve been saving, saving, saving,” he says. “And now, when we tend to tell people to spend, it’s very hard mentally to make that switch.”
If you have an excess of super, you may consider giving some money to your children while you’re still alive and they’re still relatively young.
“If you’re in the fortunate position of having enough funds, sometimes it’s a good idea to pass that on now – as long as you don’t leave yourself short,” Sankey says. “You might get a lot more benefit seeing your beneficiaries use some of the money while you’re still alive, and quite often, they get a lot more benefit when they’re younger. If they get an inheritance when they’re 75, they might not be able to use it as well as they could in their 30s or 40s.”
Lastly, this is the time to make sure the nominations on your account for who will inherit your super are up to date. As Sankey says, circumstances change: you may have remarried, or your spouse may have passed away.
“If you don’t have a spouse, what tends to happen is people tend to leave their super to adult children,” Sankey says. “And when you leave funds to an adult child … there can be tax consequences of up to 17%.”
It may be worth speaking to a financial planner, who can help you structure your estate planning in a way that minimises the tax consequences for your children.
A financial planner, such as those based at CareSuper or other financial planners based at Industry SuperFunds, can also help you plan for the one thing you can count on in life: uncertainty.
Bridgland says: “We know that things are going to change. We know that there’s going to be legislative change from time to time. Look at what’s going on in the global markets at the moment, with market volatility.
“We have geopolitical risk when the world changes. There is constant flux and constant change. It’s really important to be flexible and to not try and go this alone … things will change, but we are here to support you.”
The information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.
