Should economic volatility make you delay retirement?

Those nearing retirement age are probably nervously eyeing the markets and following every pronouncement of Reserve Bank governor Michele Bullock more closely than they’d ever imagined.

That dream of coasting into a peaceful retirement has become more problematic, given cost-of-living issues and tough economic conditions. Lately, one of the most common questions I’m asked by clients is “do I really have enough to retire?”

The rising cost-of-living burden has left more Australian unhappy, including those nearing retirement.

Some are seriously reconsidering the timing of their retirement plans. Factors such as inflation, housing prices, healthcare and aged care costs, on top of everyday expenses, are having an impact.

ASFA (the Association of Superannuation Funds of Australia) raised its retirement standard to $72,663 per year for couples, and $51,630 per year for singles for the March 2024 quarter.

Research from super fund Equip Super found a quarter of Australians think they’ll be able to retire at age 65, and those who are choosing to retire later are delaying it by, on average, six years. Around 40 per cent of them blame the rising cost of living for the delay.

The toughest issue is that rising costs are a particular burden if you rely on a fixed income (the upside of retirement is no nine-to-five work commitments – the downside is no wage or salary pay packet).

Set a budget so you understand your discretionary spend in retirement versus your non-discretionary spend.

Additionally, market volatility can make financial planning more complex, and the fact that housing is taking up a larger portion of income can have a flow-on impact on retirement lifestyle choices.

When deciding on retirement timing, you’ll need to consider your health and family circumstances, lifestyle preferences and financial situation.

How much saving is enough?

The ASFA Retirement Standard estimates that a single person needs $595,000 in superannuation to retire comfortably, while a couple needs $690,000. Using this basis, only one in three Australians have enough super to retire comfortably.

For your retirement nest egg to outlast you, you’ll need to be confident that you have enough savings to cover your expected lifespan and lifestyle choices.

Financial disadvantages such as inadequate superannuation, emergencies or poor investment returns can have greater repercussions if you’re no longer in the fulltime workforce.

In the past, many retirees would sell their city home and move out to regional areas to free up money for retirement. Post-pandemic, that is harder to do as property prices creep up in popular (usually coastal) retirement communities.

So this strategy may no longer be valid (and besides, it’s important to note this often involves moving away from family, friends and familiar amenities including metropolitan healthcare).

Try to maximise super contributions well before retirement. For example, if you’ve come to the end of forking out school fees or if you’ve paid off your mortgage, put the money that would normally go there into your super.

I’m seeing people come to me for retirement advice at much younger ages than previously. Planning for retirement when you’re in your 50s is better than thinking about it a year or two out from the “Big R” because it gives you time to grow and maximise your nest egg.

Leaving retirement planning to the last minute makes you vulnerable to any financial rule changes, with not much time to adjust and adapt your strategy (for example, the federal government’s proposed $3 million super cap and the recent Treasury papers outlining superannuation reform).

Talk to a financial advisor who can help you with specific initiatives based on your age and circumstances. They will also be abreast of any new rules regarding limits on how much you can put into super each year.

Strategies to boost your retirement savings include:

• Set a budget so you understand your discretionary spend in retirement versus your non-discretionary spend. This will help you understand what income levels you will need at retirement.
• Consider downsizing the family home to boost your super balance – current legislation allows a couple from age 55 to contribute up to $300,000 each into superannuation if you sell your family home.
• Explore alternative income streams – such as rental income from investment properties, dividend income from share portfolios or private equity investments. Consider your risk appetite and investment timeframe when making investment decisions.
• Plan early and maximise concessional and non-concessional contributions to superannuation.
• Compromise and do part-time or consulting work so that you have more flexibility and spare time but still have an income. Consider a transition to a retirement pension if you’re aged 55-64 and are working reduced hours.
• Find a balance between looking after yourself and helping your children (don’t sacrifice your well-being). For example, consider loaning instead of gifting money to help your children to get into the housing market, and make sure you have a binding financial agreement in place, not just a verbal agreement.
• Keeping yourself physically and mentally active also prolongs life expectancy so that you can enjoy retirement when it finally comes.

If you’ve boosted your retirement nest egg as much as possible, it’s then a matter of considering your health, lifestyle priorities and ability to keep working – and hopefully if you defer retirement, it’s because you enjoy what you’re doing, not due to financial worries.

Grace Bacon is director of RSM Financial Services Australia (AFSL 238 282), advising clients on wealth management, retirement planning and succession planning.

• Advice given in this article is general in nature and 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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