Getting retirement plans back on track

After a year when even the best laid plans have been put on hold due to COVID-19, people who were planning to retire soon may be having second thoughts. You may be concerned about a drop in your super balance, insecure work, or an uncertain investment outlook.

Whatever your circumstances, a financial tune-up may be required to get your retirement plans back on track. You may even find you’re in better financial shape than you feared, but you won’t know until you do your sums.

The best place to start is to think about your future income needs.

What will retirement cost?

Your retirement spending will depend on your lifestyle, if you are married or single, whether you own your home and where you want to live.

Maybe you want to holiday overseas every year while you are still physically active or buy a van and tour Australia. Do you want to eat out regularly, play golf, and lead an active social life; or are you a homebody who enjoys gardening, craftwork or pottering in the shed?

Also think about the cost of creature comforts, such as the ability to upgrade cars, computers and mobiles, buy nice clothes, enjoy good wine and pay for private health insurance.

It’s often suggested you will need around 70 per cent of your pre-retirement income to continue living in the manner to which you have become accustomed. That’s because it’s generally cheaper to live in retirement, with little or no tax to pay and (hopefully) no mortgage or rent.

Draw up a budget

To get you started, the ASFA Retirement Standard may be helpful. It provides sample budgets for different households and living standards.

ASFA suggests singles aged 65 would need around $44,183 a year to live comfortably, while couples would need around $62,435.i Of course, comfort is different for everyone so you may wish to aim higher.

To put these figures in perspective, the full age pension is currently around $24,550 a year for singles and $37,013 for couples. As you can see, this doesn’t stretch to ASFA’s modest budget, let alone a comfortable lifestyle, especially for retirees who are paying rent or still paying off a mortgage.

Then there is the ‘known unknown’ of how long you will live. Today’s 65-year-olds can expect to live to an average age of around 85 years for men and 87 for women. The challenge is to ensure your money lasts the distance.

Can I afford to retire?

Once you have a rough idea what your ideal retirement will cost, you can work out if you have enough super and other savings to fund it.

Using the ASFA benchmark for a comfortable lifestyle, say you hope to retire at age 65 on annual income of $62,000 a year until age 85. Couples would need a lump sum of $640,000 and singles would need $545,000. This assumes you earn 6 per cent a year on your investments, draw down all your capital and receive a part age pension.

Add up your savings and investments inside and outside super. Subtract your debts, including outstanding loans and credit card bills, to arrive at your current net savings. Then work out how much you are likely to have by the time you hope to retire if you continue your current savings strategy.

There are many online calculators to help you estimate your retirement balance, such as the MoneySmart super calculator.

Closing the gap

If there’s a gap between your retirement dream and your financial reality, you still have choices.

If you have the means, you could make additional super contributions up to your concessional cap of $25,000 a year. You may also be able to make after-tax contributions of up to $100,000 a year or, subject to eligibility, $300,000 in any three-year period. 
You might also consider delaying retirement which has the double advantage of allowing you to accumulate more savings and reduce the number of years you need to draw on them.

These are challenging times to be embarking on your retirement journey, but a little planning now could put you back in the driver’s seat. 

If you would like to discuss your retirement strategy further contact one of our advisers on 03 5120 1400.

https://www.superannuation.asn.au/resources/retirement-standard

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.

Watching Our Online and Social Spending

The changes to our daily lives of late have caused us to re frame our views on ‘screen time’, an activity that now more than ever takes up a significant proportion of our day.

However, as we spend more time online we are also spending more cash, and it pays to be mindful of the ways our browsing habits impact our hip pocket.

With the average Australian spending over six hours on social media every week, it’s safe to say we’re affected by what we consume online.i This can happen consciously, from actively looking up brands and products, or subconsciously, through viewing advertisements directed at us.

Social networking to selling

When Facebook first started gaining popularity in the noughties, its focus was on social networking. By 2016 it had evolved into a marketplace in which users could sell to each other, regardless of whether they were connected. Facebook also had over seven million advertisers during the third quarter of 2019 alone.ii So when you log into your Facebook account these days, it’s just as likely that you’ll end up buy something than socialising.

Instagram has similarly developed beyond simply sharing photos. A 2019 survey showed that 81% of respondents use their accounts to research products and services, and 130 million users view shopping posts each month.iii,iv

Easy social shopping

The sophisticated and seamless purchasing experience offered by social media platforms has made shopping even easier. Buy now, pay later services such as Afterpay also make it easier to purchase online through installments.

Hard to resist targeted advertising

Data collected from social platforms allows marketers to target individuals based on their demographics, interests and online behaviour. Have a look at the ads that appear when you next log in – chances are they’ll be relevant to you. Your data, such as your browsing history and the apps you use, can be tracked and used to present targeted advertising on your feeds.v This practice isn’t a secret, but it can still be surprising (and even unsettling) how tailored this advertising can be. With advertising pinpointing your real and anticipated needs, it can be hard to resist buying. And with data kept from previous ads you responded to, you’ll see even more similar ads popping up – keeping you in the spending loop.

Influencing our buying behaviours

‘Keeping Up With The Joneses’ is prevalent on social media, where people compete for the most likes. But it’s not just envy which induces us to spend. We turn to those we trust when it comes to making decisions, which is why when we see friends, families and ‘influencers’ using a product or service and having a positive experience, it acts as social proof.

Fear Of Missing Out

FOMO – it’s a thing, and something that can be worsened by social media, making it tempting to spend on the latest gadgets or lifestyle trends. Comparing yourself to others can create anxiety and also induce spending in an effort to ‘keep up’. However, there’s a growing movement towards JOMO, the joy of missing out.

With financial anxiety on the rise, JOMO is much better for our hip pocket than FOMO.vi

Watching your hip pocket when it comes to your social spend can be challenging. If you are concerned about your spending, set a budget which allows for the amount of online shopping you are comfortable with. It’s a good idea to keep track of your purchases to ensure your spending is not to the detriment of your day to day needs or your long-term financial goals.

Finally, just having a greater awareness of how social media influences your behaviour will help you to resist the subtle enticements of social marketing.

If you would like to speak to a financial planner about your spending habits, contact us on 03 5120 1400.

https://www.genroe.com/blog/social-media-statisticsaustralia/13492

ii https://sproutsocial.com/insights/social-media-statistics/

iii https://business.instagram.com/blog/how-to-sell-yourproducts-on-instagram/

iv https://blog.hootsuite.com/instagram-statistics/

https://www.wired.com/story/whats-not-included-infacebooks-download-your-data/

vi https://www.news.com.au/finance/economy/australianeconomy/younger-australians-are-embracing-the-joy-ofmissing-out-as-financial-anxiety-takes-its-toll/news-stor y/11ac6520fa3be768d885b855ae0c8c76

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

Liability limited by a scheme approved under Professional Standards Legislation.