There’s more to a happy early retirement than $73,000 a year

A friend of mine once said he thought there were three keys to happiness: someone to love, something to do and some things to look forward to.

And – along with the magic amount of money – they make for a pretty sound retirement template … because if you want to stop work, and maybe even early, having enough cash is not enough for contentment. But it’s still an important place to start.

Instead of thinking about retirement, think about it as a rewiring, giving you more time to do the things you love.Credit: Getty Images

The age at which you are targeting retirement will, of course, affect the ideal amount of money; so too will your lifestyle and spending aspirations. But the Association of Super Funds of Australia gives us a good benchmark for what a comfy retirement costs.

For a couple, it’s now $73,337 a year. For a single person, it’s $52,085. Yup, more than half because you’re covering all the household costs.

And the $64,000 question – what kind of lump sum you need to generate enough cash to be comfy – does not have the $1 million answer often claimed, says ASFA.

Assuming you own a home at retirement (we will come back to that), spend all your money over your lifetime and so receive a rising level of age pension, it says you need $690,000 as a couple or $595,000 as a single.

Once you give up working life, your community may well be the final key to a happy retirement.

Leaving aside that having someone to love and live with you makes this a fair bit cheaper, this assumes you retire at 67. Earlier, you’ll need extra.

Which brings us to what other extras you need: something to do and some things to look forward to. And they’re both something you need to consider carefully.

If you are defined by your job, or have your identity and sense of worth tied up with it, what’s the plan? What do you replace it with that is going to fill your cup and make you feel like you’re contributing?

Many people I speak to are not, in fact, planning to retire … but to “rewire”. They want to instead change the nature of their “work”, often to several pursuits that make them feel personally though maybe not financially rewarded.

And what about social connection? If you’ve been a low-on-time high-flyer, perhaps you’ve only realistically been able to catch up with friends once a month. Without the 9-5, you’ll need to know early how you will fill up your calendar to the level of your social requirement.

You’ll also need to have your strategy in place well in advance of hanging up your boots. Think about how often you want to connect to other humans and not just a partner if you have one – they’ll want you out of the house sometimes. Where and when.

Besides financial necessity, ABS data shows the most common reason for going back to work after retirement – which is relatively common after the reality of no longer working sets in – is boredom.

Know that you can do this. While to get your super before age 65 (after your preservation age or 60) you need to have no intention of returning to work – and maybe sign a declaration to prove it – you are allowed to change your mind.

What of the final (arguable) element to happiness, something to look forward to? How much will it cost for the – perhaps – cruises that are going to “float your boat”?

Have you even thought about your kick-back bucket list? This is the fun, really fulfilling stuff that we often don’t have the time (or money) to do with noses to the grindstone.

Regardless, know that how you spend your time and the shape of your spending will probably change over your retirement. Most people don’t realise it’s not linear.

In fact, ASFA also calculates the average spending requirement once you hit 85, when health (rather than holidays) may be more relevant.

Your income needs each year are forecast to drop from that $73,337 a year to $67,647 for a couple, and slightly from $52,085 to $48,879 for a single. Theoretically, then, there’s no reason to panic if that super balance wanes as you age.

So how much of a drama is it if you don’t own your own home when you retire? A moderate one. And many people don’t – census data shows a halving in the number of those aged 55 to 64 who own their home outright, over the past 20 years.

But prioritising super over your mortgage (in the 10 years before you retire) should allow your balance to grow faster than you can pay down your home loan debt. That’s because you pay a mortgage in post-tax dollars while super contributions lose only 15 per cent.

As soon as you get at your super, you could take a chunk off your home loan.

Whether you have paid it off or not, accessing the equity in your home to supplement your retirement income via a commercial equity extraction product (such as a reverse mortgage) or the government’s home equity access scheme is also an option.

Of course, so is downsizing – and each owner can (individually) shelter $300,000 in their super fund from it.

Just bear in mind that once you give up working life, your community and being plugged into it may well be the final key to a happy retirement.

Nicole Pedersen-McKinnon is author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, X and Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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