Welcome to this month’s Dominion Finance Newsletter
This month, we’re talking about retirement. As 3,000 Australians retire each week, it’s a topic that affects many of us. The most pressing question for many is: have I saved enough?
The Association of Super Funds of Australia (ASFA) regularly updates its retirement income standard, which shows how much money is needed for a modest versus comfortable retirement.
Consultancy BDO has built on this information to estimate the cost of an affluent lifestyle in retirement. As a rough guide, a lump sum of between $2.5 million and $3 million could provide an annual income of about $150,000.
The table below shows how much money a lump sum in superannuation could provide in retirement:
Australian Bureau of Statistics figures show that the retirement phase of life is getting longer. Women retiring at the age of 64 have a typical life expectancy of another 20 years, while for men it is 16 years.
So, where to start?
The government-sponsored MoneySmart Retirement Plan is a free tool that can estimate your income from super and the age pension, and show how contributions, investment options, and retirement age affect your retirement income. It can also show how working part-time or taking a break from work affects your super balance.
There are a number of questions to think about as you near retirement:
- How much money do I need?
- How long will my money last?
- Will my money keep up with inflation?
- Will I be able to leave a legacy for my family?
The answers to these questions depend on your current lifestyle expenditure, retirement activity plans, and health and life expectancy factors.
It’s important to understand your spending so you know how much your lifestyle costs. Even if you don’t think you live a lavish lifestyle, bills, rates, eating out, and travel can quickly add up to a significant annual amount.
As we age, our spending naturally decreases. Medical bills may start to increase, but we tend to travel less and need less as we get older. A general rule of thumb from financial advisors is to decrease spending by 10% every five years.
The age pension remains a critical part of retirement planning for many Australians, particularly for older retirees who need to top up on depleted lump sums.
Two other factors to consider are the impact of inflation on the cost of living and the fact that your lump sum will be compounding and growing in size over time.
Many retirees live cautiously and have a lot of money left over when they pass away. However, there is a strong argument for not running out of money while you’re still alive.
It’s vital to seek professional advice, read lots, and talk to other retirees to understand how retirement may look for you.
Until next time, enjoy!
At its meeting today, the Board decided to raise the cash rate target by 25 basis points to 4.35 per cent. It also increased the interest rate paid on Exchange Settlement balances by 25 basis points to 4.25 per cent.
Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3½ per cent by the end of 2024 and at the top of the target range of 2 to 3 per cent by the end of 2025. The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.