Retirement Living Costs
Retiring means beginning a phase of life that brings significant change. If you are financially prepared, it can be a really interesting and satisfying time of life. If you are not, it could be stressful and frustrating. We urge you to begin 2017 with this achievable New Year’s resolution: Focus on financial planning for your retirement.
This is the first in a 3-part series on planning for retirement that aims to answer the important What, Where, Why, When and How questions that need your attention without delay.
If you don't plan for your retirement, you run the real risk of finding out too late that you can no longer afford to live the way you did before retirement. You may need to reduce your lifestyle once you stop work, compromise on leisure activities and minimise spending on a car, clothes, holidays, electronic equipment and more.
On the other hand, financial planning gives you control and the opportunity to find out how to improve your financial position, through regular savings, investment opportunities, borrowing to invest or making the most of your super. Making well-considered decisions now, will likely mean that you won’t need to rely on a limited age pension.
Your options in retirement will largely come down to what you can afford once you are no longer earning. To help you work this out, we suggest you consider three important points:
1. What will your retirement living costs be?
Every quarter, the Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget required by Australians to fund their retirement. The ASFA data provides a useful reference point for your own planning in the form of budgets for singles and couples for either a modest or a comfortable lifestyle. The figures shown below assume outright home ownership and reasonable health.
Budgets for various households and living standards for those aged around 65 (September quarter 2016, national) 
ASFA defines a ‘modest’ retirement lifestyle as one that ‘is considered better than the Age Pension, but still only able to afford fairly basic activities’.
ASFA describes a ‘comfortable’ retirement lifestyle as one that ‘enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel’.
Compare the ASFA budgets with your current budget, as this will give you some indication of whether or not your current lifestyle is likely to be sustainable once you stop work. Knowing what you need to be ‘comfortable’ compared with your actual or expected annual income will also help you to set goals so that we may help you to implement an appropriate retirement savings plan.
2. Where will you live in retirement?
A second key issue for your financial planning for retirement is knowing where you want to live. Retirees who age in place choose to stay in a familiar environment in a community they know and enjoy. Some retirees elect to downsize in the hope of liquidating cash that has been tied up in the family home, while others upsize in order to create opportunities for adult children and grandchildren to visit comfortably.
These options may look straightforward, but all of them may have major financial implications for your financial planning for retirement. You would be very wise to seek professional help in your decision making, particularly in light of the fact that your retirement may be longer than you think due to increasing life expectancy. This also needs to be taken into account as you consider the suitability of your living arrangements and how you will fund them once you are retired.
You may remember we have written before about various accommodation options in an earlier article.
3. Are you on track?
The third point to consider in planning for your retirement is whether your current assets are invested appropriately and structured appropriately from a taxation point of view. In other words, are they ‘pulling their weight’ so that you are on track to build a capital base that will deliver adequate funding for your retirement.
Exploring this question may require a careful audit of your current financial circumstances in terms of how effectively they are contributing towards funding the retirement of your choice.
In our next article in this series, we will consider your options in terms of possible retirement income streams.
Seeking financial advice can be invaluable in helping you to set and work towards achieving your retirement goals. The issues are complex and you are likely to need professional help to develop a tailored plan that takes your unique circumstances into account. If we can help, please call Pacesetter Financial Services on (07) 3808 2808 or email firstname.lastname@example.org
Pacesetter Financial Services and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 trading as Fortnum Financial Advisers.
This information (including taxation) is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Pacesetter Financial Services strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.