Australians are increasingly worrying about their retirement balances but bringing that stress into your life is often non-productive, financial advisers say.
The effects of the pandemic have dinted views on how much they are likely to have to retire, according to AMP’s Financial Wellness survey.
The survey found that most people expected to retire on a super balance of $400,000 this year, but figure they would need $600,000 for a comfortable life.
However, back in 2020 before the pandemic struck most people surveyed thought they would retire with $500,000 in the kitty.
Thabojan Rasiah, principal of Rasiah Private, said the pessimism is likely market related.
“Sharemarkets fell 30 per cent when COVID struck early in 2020 then recovered,” Mr Rasiah said.
“But this year they came off again with concerns like inflation so the market is down on where it was before COVID so that might be the reason.”
The rise of inflation has not only pushed down sharemarkets in recent times, it has made people more pessimistic about retirement generally.
Only 21 per cent of people told the survey they thought they could reach a comfortable retirement compared to just over 30 per cent two years earlier.
And half of those in their 50s think the return of inflation after many years will erode their retirement balances.
But these fears for many people could be overblown with Treasury’s Retirement Income Review finding “many of us underspend in retirement, passing away with as much as 90 per cent of our super savings untouched,” said Ben Hillier, AMP’s retirement solutions manager.
Heightened by increasing cost-of-living pressures, Mr Hillier said: “There is a fear of running out [stemming] from a basic lack of understanding – an awareness gap – of finances and the retirement system. The upshot is millions of Australians are unnecessarily compromising quality of life in later years”.
That means those in mid-career and nearing retirement need to do some planning, Mr Rasiah said.
“The first question is what kind of balance you think you need to have in retirement,” he said.
To be sure that you aren’t just pulling an abstract figure from the air “think about what sort of lifestyle do you want to have – what are your goals?” Mr Rasiah said.
Make sure you take account of likely changes in your lifestyle over time.
“If you’re in your 40s and have the kids living with you, you’re probably not going to have the same costs when they leave and you retire,” Mr Rasiah said.
But think of other expenses you may have when you age – a new car every 10 years or travel plans, and factor them into your retirement needs calculation.
Do your sums
It would be a useful exercise to go through this with a private financial planner or a free one offered by your super fund.
That way you can get an accurate picture of how much of your super you need to spend and how that might interact with the age pension, which is a retirement backup.
The chart above details average super balances for different age groups.
Although it looks like many people are going to miss out on the $600,000 they told AMP they would like to have in retirement, this may not be the case.
The Association of Superannuation Funds of Australia estimates that for a comfortable retirement a single home owner would need $545,000 and a couple $640,000.
According to Paramount Financial Solutions, you can add another $200,000 to those figures if you’re not a home owner.
That means if you are a couple with average levels of super in your early 60s you are quite likely to be in the comfortable category.
Even if you are not on target for the comfortable level, there are things you can do now.
Cut your expenditure and boost your super contributions for the last few years of your working life is one obvious way.
There are attractive tax deductions that help support that move.
“Have you ever thought you might like to downsize your home?” Mr Rasiah asked.
Even if you don’t want to make that move now “what about when you are 70 or 80?”
Doing it a decade or so into your retirement could see a couple drop up to $600,000 extra into super or a single up to $300,000, which would boost the latter years of retirement and give you the confidence to spend more in the early years.
Don’t give up work
Then there is also the option of working for longer.
Even if you take a part or full pension on retirement at say 67, the government lets you earn up to $300 extra a fortnight from personal labour without reducing the pension entitlement.
For the last half of the financial year this has been doubled and the government may extend that benefit further.
“Depending on your background you might be able to do consulting work. Even if that delivers $10,000 or $20,000 a year that would make a big difference to your retirement,” Mr Rasiah said.
Older people may also be able to factor in inheritances. But be realistic about how much your ageing relatives have and spend, and see if you can find out if you are in the will.
So don’t be intimidated by your superannuation needs. Plan and see if you can find a way to get the balance you would like.
“The key takeaway from this research is for all Australians is to engage more with their retirement planning, and access resources and help. It’s never too early, or too late,” Mr Hillier said.
The New Daily is owned by Industry Super Holdings
