Three of the biggest retirement myths, busted

There are a few retirement myths that seem to persistently buzz around, no matter how much we try to swat them away. Today, I’m tackling three of the biggest ones that keep cropping up in my retirement courses and events. It’s time to lay these myths to rest once and for all.

Myth 1: You need a million dollars to retire in comfort

For ages, there’s been this overwhelming notion that a million-dollar superannuation is the ticket to a comfy retirement. But let’s set the record straight – this isn’t necessary for most people. Data shows that the median super balance for Australians between ages 65 and 69 is far less than a million. In fact, as of the last report in 2021, it was $213,986 for men and $201,233 for women.

Million-dollar superannuation isn’t necessary for most people.Credit:

The Association of Superannuation Funds of Australia says that the average Australian couple needs $690,000 in superannuation as they enter retirement, to be able to reach the level of income they declare will provide for a comfortable retirement of $73,337 a year. And a single person will need $595,000 in super for a comfortable retirement, allowing them to rely on an income of $52,085. These numbers assume that you retire at 67, own your own home outright, and you can access a part age pension and the pension concessions to help manage your cost of living. If you are ineligible for the pension, or you don’t own your own home, you’ll need to budget more.

But everyone’s idea of a comfortable retirement varies. For some, it means travelling the world and enjoying life’s greatest luxuries, while for others, it’s about simplicity, spending time with grandchildren, indulging in hobbies, or spending time on passions and purposeful volunteering. Your retirement goals are at the core of knowing how much you actually need for the comfortable retirement – and you need to spend some time working on them.

The best way to assess how much you need is to take those goals, then build a detailed budget, incorporating the amount you want to spend on everyday living, the amount you want for one-off expenses and big ticket items; and the amount you want to put towards your epic retirement experiences. Then, get onto a retirement calculator, such as the one on the moneysmart website, and see whether your current superannuation balance can support the budget you’ve built over your projected lifespan.

Myth 2: You should move all your investments to conservative assets

When people shift into retirement, they can feel gripped by the financial realities of never earning a pay cheque again, with many people becoming quite concerned about protecting their capital. Some even consider shifting their entire portfolio to conservative assets. However, completely turning your back on growth assets might not be the smartest move. The reasons are twofold. First, life expectancy has risen dramatically. For many, retirement could now span 25 to 30 years, or even longer. This extended timeframe means you need to maintain some exposure to growth assets to maintain your capital pool over and above inflation. If you shift all your investments to conservative, they might struggle to keep pace.

The key to retirement investing is not to eliminate risk but to manage it appropriately. A diversified portfolio that includes a mix of equities, bonds, and other assets can help manage risk while still aiming for growth that keeps your portfolio value rising in the face of inflation. The exact mix should be set with the help of a financial adviser, taking in your personal level of risk tolerance, your financial goals, and your retirement timeline.

Extra income from work can enable discretionary spending in the early retirement years.Credit: Getty

Myth 3: You should give up work completely the day you retire

The traditional definition of retirement in the Oxford Dictionary is the action or fact of leaving one’s job and ceasing to work. But I don’t think this definition has been updated to fit today’s modern attitudes. In my experience, most retirees when questioned say they almost certainly hope to work after they retire officially, in a part-time, casual or flexible capacity. And there’s three big reasons most want to.

First, for many, their career is a significant part of their identity and a source of daily social interaction and intellectual stimulation. Stopping work suddenly can lead to a feeling of relevance deprivation and isolation. It can be better to phase their way out of the workforce over a longer period, working part-time or freelance for some time, to make the transition to retirement easier.

Second, working during retirement can provide a healthy layer of income that reduces the need to draw down on superannuation too early and helps people dependent on the age pension to make ends meet a little more effectively. The extra income from working can offer a buffer for unexpected expenses, or can allow for more discretionary spending in their early retirement years – something many are trying to achieve.

And finally, plenty of health and happiness studies have shown that continuing to work can have a positive impact on our bodies, minds and spirit, including driving lower rates of chronic disease and mental health issues. Work can provide a routine, sense of purpose, and opportunities for social interaction, all of which are important for maintaining physical and mental health in later years.

So next time someone suggests one of these doozies, tell them the truth about modern retirement, and how it’s no longer managed by myths. Make it epic!

• 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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