• $59,236 per year for a couple,
  • $43,184 for a single retiree

Once we retire, we have a fundamental problem – how do we go about providing our income needs?

The Association of Superannuation Funds of Australia (ASFA) calculates that, for those aged around 65 years, to secure a comfortable lifestyle in retirement, a couple would need to have an income stream of roughly $59,236 per year. For a single retiree, that figure comes to $43,184.

The report found that around 40% of seniors had no specific plan for later life expenses, such as medical treatment, and that two-fifths of seniors are not using a formal budget to manage their household expenses. The report also found that those aged 50 years and over were underestimating how long they would live by up to 7 years.

With longer life expectancy and poor budgeting, the risk of running out of money in retirement increases.

According to ASFA retirement modelling, in order to achieve a comfortable standard of living in retirement, an individual requires a minimum balance of around $545,000 and a couple around $645,000. Currently, less than 20% of single people and 30% of couples (aged over 65) are able to reach this standard of living.

Uncertainty of how long we will live

It’s long been known that Australians are living longer. But it’s important to quantify how rapid this increase in life expectancy actually is.

In 1960, a 65 year old male had an average life expectancy of 12.47 years and a female 15.68 years.

The most recent life tables (for 2010 – 2012) show that a male can now expect to live 19.22 years and a female 22.05.

So over 50 years, male life expectancy has increased 6.75 years and females by 6.37 years.

Accurium, an actuarial firm, has estimated that at least one member of a couple, husband and wife who are both aged 65, have a very good probability of seeing 100 years of age. That is, one of them will live for at least another 35 years.

So our retirement income should cater for improving living standards, taking into account our one-off expenditures, and also be enough to pay us some money for an uncertain number of years, which may be longer than we expected.

$1 million

$1 million is a lot of money. However, the income produced from $1 million invested in retirement is barely enough to meet a couple’s comfortable living expenditure.

A couple with $1 million in retirement and the income it generates is slightly better off than a couple receiving a married couple Age Pension of $34,252 per annum.

The proposed changes to Centrelink from 01.01.2017 will see many couples in retirement who are currently receiving a Part Age Pension will no longer receive this part pension. Many retired couples are eating into capital to meet their retirement living ant his will increase for retirees who will lose their part pension from 01.01.2017.

The importance of using a financial planner

There have been more than 10,000 changes to legislation affecting superannuation in the past 20 years, and from what we hear from the proposed 2016 Budget changes, there are many more to come.

Good luck to persons who think that they know the superannuation legislation and can plan for a healthy retirement. In my time in this industry I have witnessed many people that started off doing their own their retirement planning and have had to come to us as they were not aware of about half the strategies or solutions available to them or how they could navigate through all the options.

Don’t leave retirement planning until the last 5 years before you are considering retirement. Everyone should see a financial planner no matter what age or at what stage they are with their career to plan for their future retirement.

We cannot stress the value of good professional financial advice.

Many retirees that see us, ask us “How far will my money last in retirement?” Generally in retirement you will have a lot more time on your hands. Our experience working with retirees is that we see expenses skyrocket in the year or two immediately following retirement, and then settle down as time goes on.

It is just so important to get good advice when you are considering retiring, particularly in today’s low-interest-rate low-inflation environment. It does appear we will be in this situation for several years.

We always appreciate referrals. If we can assist any of your friends and family prepare for retirement, please consider our services.

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David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

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