Retirement can seem like a distant proposition, especially if you’re just starting out in your working life. But, you’re not going to be working forever so it’s important to start thinking about retirement early.
Whether you are looking at passive investing, exploring managed investment funds or you’ve just finished reading the Barefoot Investor, one thing you may be wondering is how much do I need to retire in Australia?
The answer to this question depends entirely on the retirement lifestyle you wish to have once you stop working. We’ve listed below some considerations that may be helpful when you begin your retirement planning.
Do you have any ongoing living costs?
Before anything else, when looking at your retirement investment, you should first understand the ongoing costs you are likely to still have once you reach that milestone age.
Ongoing costs can take the form of:
- Mortgage repayments
- Medical expenses
- Shopping, eating out, running a car…just living can be costly !
If you’re a relatively young and healthy individual without any major expenses, this may all sound a little foreign. The truth of the matter is, to look at ongoing costs, you will need to sit down and think about what your living situation will look like when you retire. Will you own your home? Or will you be renting or paying off a mortgage?
When you are working, it can be easy to forget the extent of ongoing costs. To ensure you have a retirement investment that will give you financial independence, it is important to factor in all of the costs.
The retirement benchmark to be financially independent in Australia
“Is there a figure that I need to work towards?”
The other big consideration when calculating your retirement investment is the kind of lifestyle you want once you retire. During your working life you will become accustomed to a certain way of living and, once you retire, you will no doubt want to maintain that lifestyle.
The good news is The Association of Superannuation Funds of Australia (ASFA) provides an annual retirement benchmark for Australians to work towards, depending on whether you wish to fund a modest or comfortable lifestyle, post-working life.
As at October 2021 the government suggests that funding a comfortable lifestyle, the amount recommended per year is $44,412 for a single person and $62,828 for a couple. If you wish to support a modest lifestyle, then you would only need $28,514 if you’re a single person or $41,170 if you’re a couple.
These figures however are based on owning a home and being relatively healthy individuals. So, if you’re going to be paying off a mortgage or have heavy medical expenses you need to bear in mind that you may need much more. The earlier you start to think about your future, the better. Use MoneySmart’s calculator to find out the income you’re likely to get from super and the age pension.
The difference between modest and comfortable retirement
The key difference here is really the level of freedom you will be able to gain. With a modest lifestyle, you will be getting a little bit more than the Age Pension but it is only going to allow you to spend frugally.
However, a comfortable lifestyle could enable you to have access to a number of recreational activities and be able to afford premium extras like private health insurance, international holidays and a nice car.
Choose a retirement investment strategy
It can sometimes be strange to think about retirement so early in life but if you want to maintain a similar lifestyle, post working life, it’s best you start planning as soon as you can.
There are many investment strategies you can adopt to ensure you are able to adequately fund the lifestyle you want, but with the number of options available it can be overwhelming, especially when you haven’t yet turned your mind to your retirement plans.
Unhedged can play a part in your retirement decision making and give you the opportunity to control and improve your future.
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Products issued by Melbourne Securities Corporation (MSC). Please consider the PDS and TMD available on our website before applying. All investments carry risks and you may lose your money. Past performance is not indicative of future performance. The information in this report has been compiled from sources we believe are reliable and we make no warranty in respect of its accuracy.