Retirement plunge: how to work out if you are ready

There are more than just financial factors when working out when you want to retire. Here’s what to consider.

The pandemic is pushing out retirement dates for older Australians and reshaping plans for others, but one key question stays the same.

Are you ready to retire – both financially and emotionally?

Some financial factors have changed, with many households spending less money because expensive lifestyle choices such as travel, concerts and major events have been taken away by Covid-19.

Uncertainty over international holidays – a key retirement goal – is causing more people to delay their retirement, says William Buck wealth advisory director Adrian Frinsdorf.

“Overseas travel is high on the bucket list for retirees and therefore many are opting to spend another year or two in the workforce while they wait for international borders to re-open,” he says.

William Buck wealth advisory director Adrian Frinsdorf says emotions play a role.

Working out how much money you’ll need to retire is different for every individual. The Association of Superannuation Funds of Australia delivers a good starting point with its quarterly ASFA Retirement Standard, which has been running for 17 years.

Its latest report says a couple will need $63,352 a year and a single $44,818 a year for a comfortable retirement. This will require superannuation balances of $640,000 and $545,000 respectively, and assumes retirees will live off a combination of their savings and a part age pension.

Everyone’s idea of comfortable is different. ASFA’s retiree budgeting allows for international travel every seven years, regular leisure activities and owning a “reasonable car”.

“There is no one-size-fits-all dollar sign for retirement,” Frinsdorf says.

“The amount you’ll need really depends on the lifestyle you wish to lead and other considerations such as family financial assistance,” he says.

Some parents want to help children and grandchildren with financial gifts, education support or early inheritances, Frinsdorf says, and this needs to be factored in.

“It’s not just about money – it’s also about being mentally prepared for retirement,” he says.

“This preparation may include taking long service leave or moving to part-time work to ease into the retirement lifestyle.”

MLC Technical Services manager Jenneke Mills says adjusting to leaving the workforce “can be confronting” because work also offers social interaction and a sense of purpose for many people.

Many people transition to retirement with part-time work, and there are government incentives and tax benefits that can help.

“If you want to dip your toe in the retirement pool before you commit to diving right in, you may be able to access some of your super savings to supplement your reduced employment income,” Mills says.

“This can be a great way to test the waters, without having to compromise on your current lifestyle,” she says.

“If you continue to work part-time or casually for example, you might be entitled to some support from the Government.”

Before leaping into retirement, ask yourself some questions first. Picture: iStock

Financial advisers have copped criticism in recent years but one of their biggest strengths is helping people navigate the years approaching retirement.

Superannuation rules are constantly changing, and many people don’t realise that in just one year they can potentially pump hundreds of thousands of dollars into super – despite government caps on contributions – and then live tax-free during retirement.

“There are a wealth of tools and resources that are freely available, as well as expert financial advice,” Mills says.

Financial planners say many clients are surprised to discover they don’t need as much money to retire as they thought they did.

And Australians always have an age pension safety net.

“Understanding what your social security entitlements are likely to be, and how you can maximise any support you may be entitled to, is an important piece of the puzzle,” Mills says.

QUESTIONS TO ASK YOURSELF

1. What do you want retirement to look like?

2. Where will the money come from and how long will it last?

3. Do you have emergency funding available?

4. Will you have to juggle debt, such as a mortgage, once retired?

5. Have you used superannuation’s full power and tax benefits?

6. Are you emotionally ready to retire?

7. Have you sought, or do you need, professional financial advice?

Source: MLC

Originally published as Retirement plunge: how to work out if you are ready