As you grow older you will be presented with many challenges, but this should not apply to your retirement income. Below we discuss retirement income and what you need to know to keep you on track to the retirement you desire.
You’ve spent the majority of your adult life working hard and looking forward to a worry free retirement. But there is a lot that goes in to preparing for retirement and ensuring that you are able to enjoy the retirement you imagined. It’s very common for the retirement conversations to center around:
- Will I have enough.
- What are the risks to my retirement.
- Will I get a Centrelink Aged Pension.
- Will I need to downsize the home.
Whatever your concerns, retirement requires a lot of planning and constant review of your plan, goals and objectives. Ensuring you constantly review your plan will enable you to make adjustments and remain aware of how your retirement goals are tracking. In the below article we explore the most common question we receive about retirement…. Will I have enough to retire?
How much do I need to retire?
The Association of Superannuation Funds (ASFA) assessment in June 2020 found that a single pensioner needs to make $43,687 per annum to enjoy a comfortable lifestyle. For a couple, that number goes up to nearly $61,909 per year. With advances in medicine and technology people living longer and this is increasing pressures to retire. It’s becoming more necessary to save more during your career to comfortably support the post-work twilight years.*
The current system
Australia’s superannuation system was created with a ‘one size fits all’ approach that doesn’t necessarily suit all retirees needs. Currently, a retiree has the option to access their superannuation in one lump sum at preservation age (age you get access to your superannuation). This could prove problematic for some people as they may not be fully aware of the consequences of withdrawing their funds from superannuation. Once the funds have been withdrawn from the superannuation system it can prove difficult to get the funds back in to super as there are contribution rules which need to be followed. Therefore, withdrawing funds as a lump sum can have long term consequences.
It has been suggested that income streams should be mandated, but this approach isn’t likely to work as a person should have the ability to decide how they spend the money they have accrued over the years. How would mandating a persons pension deal with the big celebratory trip to celebrate retirement? or what if health concerns dictate additional spending in the early years of retirement. There should be a better approach to how and when people are able to access their super and personal circumstances should be considered. In the meantime, what else can you do to ensure that you have the funds you need – when you need them?
What’s my plan for the future?
Having a clear savings plan that maps out how you will reach the yearly benchmark of $43,687 (single) or $61,909 (couple) is admirable, but it doesn’t take into account the possibility of unforeseen events or illnesses that can put a severe dent in a retirees budget, fixed or not. This is where the use of emergency funds and ability to access additional funds plays a critical part in a persons retirement strategy.
What about annuities?
Annuities are a retirement product which provide more certainty around retirement income because they provide a guaranteed regular income stream, much like a pension. An annuity is started by the retiree paying a lump sum amount to start the annuity and then the retiree is paid a regular income. While annuities are typically thought of as an income stream for life, you have the choice to set them for a fixed period of time (for example for 5 years, or 10 or 20 years). Other options you have when looking at an Annuity include indexed annuities, which protect the income you receive from the effects of inflation, and deferred annuities, which begin payouts once the policyholder reaches a predetermined age.
One drawback of a Lifetime Annuity is that if the retiree passes away the remaining funds are usually kept by the provider, unless there is a minimum payment term as part of the contract. This could then leave a retirees spouse or family without sufficient funds. To overcome this you can elect a revisionary annuity, which would pay your spouse in the event of your death.
The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.