Paul Pellegrino is a Financial Planner of Partners in Planning, an Australian firm that was founded out of a need to provide client focused advice for fundamental investing.
After 15 years as an adviser, I can tell you that planning for retirement is different for everyone. We are all different with our objectives, resources – both financial and life – and tolerance for risk when investing.
As retirement gets closer, stopping work and the steady flow of income can become overwhelming. As early as you can in your working life, you need to look at all the options on hand and develop a plan of attack that works for you.
Being realistic and thinking about outliving a nest egg and going into aged care must be part of the plan. We move from pre-retirement where we want to maximize our balance to retirement where we want to maintain our capital for income and legacy.
Mike Tyson once said “Everyone has a plan until they get punched in the mouth” and this is true for retirement planning! Being agile and flexible is mandatory in this day and age.
The magic retirement number
If I had a dollar for every time a client had asked me how much money they need in retirement, I would be retired by now!! It all depends on the level of comfort (aka Expenses) you are used to. I am fortunate to work from all four of our Australian offices and I can tell you there is a definite difference in level of comfort across the suburbs. It costs me more to buy my lunch in the Mornington office than it does in the East Brunswick office, which impacts my current and future financial position.
In order to calculate a possible retirement figure for your individual circumstances, you need to firstly look at what your daily expenses are likely to be. By this time all debt and capital (renos, cars etc) have been taken care of, so expenses will be about living and enjoying life.
Industry recommendations for retiring – how much money do you need?
Industrial body the Association of Superannuation Funds of Australia’s Retirement Standard suggests two different guidelines for retirement planning – cashflow and lump sum. Here’s how they look:
According to the Association of Superannuation Funds of Australia’s Retirement Standard, to have a ‘comfortable’ retirement, single people will need $45,962 pa and couples 64,771 a year based on you being a homeowner.
If we look at the age pension, a single person receives $21,222 and a couple $31,995pa plus supplements – roughly half of this recommended figure.
The Association of Superannuation Funds of Australia’s Retirement Standard also suggests that to have a ‘comfortable’ retirement, single people will need $545,000 in retirement savings, and couples will need $640,000 based on you being a homeowner.
While you should have some idea as to what you’ll need to save per month based on your retirement goals, you also need to make sure that you have that money to save. Retirement is inevitable. It’s a good idea to put retirement savings as a line item in your budget, just like food and shelter costs, so that you can set aside those funds every month.