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How expensive is retirement?

When talking about the costs of living in retirement, we refer to the figures published by the Association of Superannuation Funds of Australia, known as the ASFA Retirement Standard. The latest figures for the June 2018 quarter have just been released. They show a small increase in the overall costs of living in both the ‘modest’ and ‘comfortable’ lifestyles for retirees.

The budgets published assume that a retiree owns their own home and is otherwise free of all debts, including car loans, credit, and store card debts.

The figures provided by ASFA are a guide.

How do the latest figures stack up? I have included the full rate of age pension for a comparison.

 

The figures shown are for a full year.

Notwithstanding health and aged care costs, as people age, their living costs tend to reduce. ASFA estimates that for a single person, or couples, their living costs will reduce by around $2,000 per year, or $4,000 for a couple living a comfortable lifestyle, from around the age of 85.

For those of us approaching retirement, the big question is: ‘how much money do I need to support my preferred lifestyle?’

ASFA has estimated the amount of money that you will need to have available to fund the retirement lifestyles.

For those living a modest lifestyle, and assuming they don’t have significant investments and other assets, will generally qualify for the full rate of age pension. That being the case, both a single person and a couple will only need around $70,000 of investable funds to make up the shortfall over the age pension.

Anyone aspiring to live a comfortable lifestyle is going to need more.

Whether savings are held in superannuation, or invested outside super, a much larger sum will be required to support the lifestyle. As savings increase, the rate of age pension reduces due to the impact of the assets test.

A single person will need around $545,000 of investable funds, and a couple will need $640,000 between them if seeking a comfortable retirement lifestyle. If a couple has $640,000 in super and their other assessable assets were relatively modest, they would still receive around $12,750 of age pension between them. They would, therefore, be drawing down approximately $47,850 from their super each year to support a comfortable lifestyle.

However, a single pensioner with $545,000 in super will not qualify for any age pension. Therefore, they will be relying on their own resources to provide for their retirement income.

Living in retirement is all about choices.

These choices will often be influenced by the decisions we make during our working life. Whether we choose to save and put more money in super or spend everything we earn on our journey towards retirement, will dictate what our retirement will look like. Sadly, many people find that once they retire, there simply isn’t enough money to allow them to live the lifestyle they have always dreamed of.

 

 

Source:  Peter Kelly | Centrepoint Alliance

Feel like a sandwich?

No, I am not referring to a piping hot ham and tomato toastie with cheese oozing out the middle, but rather I am referring to your current lifestyle.

Recently I made an observation about the number of grandparents looking after young children in a local park, and how those of us approaching retirement today often find ourselves playing the role of ‘carer for the young and old’.

For those of us in our 50’s and 60’s, we have become the ‘sandwich generation’. We are caught between our children and their growing families, and in many cases, our own parents who are approaching their twilight years.

As we approach or enter retirement, many of us still have one or both parents alive. This is a product of an increasing life expectancy. According to the World Health Organization, Australia ranks 4th in the world for having the longest average life expectancy.

With the added pressure on young families to have two incomes simply to be able to afford to enjoy the lifestyle they desire, coupled with the spiralling costs of child care, today’s 50 and 60 years olds are also becoming the part-time or even full-time carers for their grandchildren.

So, where does this leave today’s ‘young’ retirees?

They find themselves providing increasing care for aged parents, whose needs for assistance will only increase with age and, at the same time they are spending time caring for their grandchildren, even if that is just picking them up and providing after-school care.

It’s fair to say that most grandparents love to spend time with their grandchildren – watching them grow and learning to master new skills. But, this can be exhausting, particularly as grandparents start to age themselves.

When coupled with caring for older parents, that can be even more demanding.

Perhaps, for those of us with older parents, some time spent finding out what services are available in the local community is a good starting point. Whether it is the need for help when cleaning the house, mowing the lawns, administering medication, or otherwise helping to manage daily living, exploring what is available, on a short-term or longer-term basis, is worthwhile.

We need to take time out for ourselves, while still acknowledging the need to provide support and assistance where we can.

Drawing on the support of other agencies and services when the need arises should never be seen as a weakness on our part. After all, and despite the perceptions of our families, we are still only human!

 

Source:  Peter Kelly | Centrepoint Alliance

Have a question about retirement? You’re in good company!

When I speak with people who have either retired, or are planning to retire in the near future, there are some similar themes that emerge when it comes to the financial side of things.

There appears to be five key questions that regularly come up in the conversation.

Will we have enough money to enjoy our retirement?

Many people have an idea about what they would like their retirement to look like – where they would like to live, how they will spend their days, the type of car they would like to drive, and the places they would like to visit.

However not many people have considered just how much their ideal lifestyle will cost.

Sure, the government will pay the age pension, however that does not allow you to have a particularly ‘flamboyant’ lifestyle.

The maximum age pension for a single person is just $22,804 p.a., and for a couple it is $34,382 combined. To put this into context, the poverty line for a single person in Australia is $426 per week (pw), or $22,152 a year.

The latest figures in the Retirement Standard published by the Association of Superannuation Funds of Australia show that a modest retirement lifestyle costs a single person $23,767 per annum (pa), while the cost for a couple is $34,216. By contrast, a single person wishing to enjoy a comfortable retirement lifestyle will spend just on $43,000 – when a couple will be shelling out close to $60,000.

Will I ever be able to retire?

For those wishing to maintain more than a basic retirement lifestyle, some form of continued participation in the workforce after ‘normal’ retirement age is a decision some will be willing to consider in order to fulfil their retirement dreams.

However, undertaking work that generates an income in retirement doesn’t necessarily mean working the 9-to-5 grind from Monday to Friday. Work may be part-time, casual or seasonal. For some it may even mean self-employment – taking a hobby or a skill and turning it into a small business.

Retirement becomes a trade-off. If we have dreams of a certain lifestyle but don’t have the means to support it, it will either be a case of trading down our lifestyle – nobody wants to do that – or find a way to afford it.

In addition to providing a source of income – ongoing workplace participation provides a social outlet (and also helps to keep individuals mentally in check!).

What about the increasing costs of health care as we age?

It is a fact that as we age; we become more reliant on the health care system, and that all costs money.

For those who are eligible for a part or full age pension (approximately 2.5 million Australians) the Pensioner Concession Card provides access to a range of services including bulk-billed doctor’s visits, access to hearing services, reduced cost of pharmaceutical items, and a range of other concessions.

Even if you don’t qualify to receive an age pension, self-funded retirees of age pension age may be eligible to receive a Commonwealth Seniors Health Card which can also provide concessions for health care and pharmaceutical items.

We need to understand what benefits we are entitled to. Sadly, many Australians are missing out on accessing benefits and services that are freely available simply because they are unaware of their entitlements.

What if I run out of money?

This is a very real concern for many people as we don’t know just how long we are going to live, and that makes planning very difficult.

With life expectancy in Australia steadily increasing, retirement is likely to span 25 to 30 years for many. With the money we do have it must last a very long time.

Recent research has found that many Australians are actually under spending in retirement so as to ensure the money lasts.

Managing the retirement budget requires some careful planning. Some very good advice is available to assist in that process.

Even if you were to run out of money, the age pension is there to provide a safety net. Most Australians will be entitled to receive the age pension at some point during their retirement.

The government rightly expects people to use their own financial resources first, before drawing on the public purse. As a result, and as a consequence of an ageing population, we can expect to see government policy being tightened more to restrict the age pension, and other government welfare payments to those truly in need.

And that might include raising the age of entitlement at which we can begin receiving the age pension.

Will I be able to leave a legacy?

Being able to leave a legacy to children and grandchildren is something that many people earnestly aspire to. But, at what cost?

There are many stories of people living in poverty simply so they preserve their modest savings to pass on to the next generation who, are often living a far more luxurious lifestyle than their parents ever imagined.

While being able to leave something for the next generation is a noble ideal, I am sure that a significantly large proportion of potential beneficiaries would prefer to see their parents enjoy their retirement years.

Leaving a legacy would be wonderful ideal, but would your kids want you living on baked beans for the rest of your life? There has to be some balance.

Enjoying a comfortable lifestyle, and being able to afford it, is a very fine balancing act.

There is no simple answer, but perhaps the lesson is to start planning as early as possible, understand what entitlements are available, and seek the appropriate advice.

 

Source:  Peter Kelly – Centrepoint Alliance

Perspective: the way you see something

Over time your perspective can change. This is influenced by numerous factors including age, education, your varied life experiences, family, a circle of friends, and no doubt – travel.

I myself am a good example of changing my perspective over time. Especially if I recount my own personal experiences from the last couple of months.

I have just returned from holidays in France and Italy. Before I left on my holiday people were very kind in offering suggestions of what to see, what not to see, what to be careful of, who to be careful of, where to eat, and where to stay.

So before I had even left the country I was concerned about the attitude of the French, gypsies begging in the street, pickpockets, crowds and queues, my own security, terrorists, and the scorching heat of a European summer. My perspective had been altered and I asked myself, “have I made the right decision to go to France and Italy for my holidays?”

The tragedy that occurred in Nice just before I arrived did not help the situation.

After three weeks travelling through France and Italy, I can report that the people I met in France were very polite and helpful, I did see a number of people begging, but was never harassed by any. The crowds and queues can be significant but if you get up early the problem is reduced. It was warm but not unbearable, and security measures were visible in most places so I never felt overly concerned for my own safety.

My perspective had changed once again and was in a very positive mindset regarding my attitude to travel.

However, it did make me realise that the negative comments I had read or listened to prior to my holiday had altered my perspective, and made me question my decision to take holidays in France and Italy. I had, in fact, provoked my own degree of fear.

So my question now is with all the negative press regarding ‘longevity risk’ in retirement, do we run the risk of altering people’s perspective of retirement to one of fear and trepidation?

I do understand that longevity risk is a concern. But have we tipped the scales too far to the point where people are now over-concerned about spending too much money early in their retirement, and trying too hard to adjust spending patterns to ensure they are able to continue to fund their retirement when they do reach their late 80s?

There is no doubt a fine line that a person needs to tread between an appropriate level of spending and saving in retirement. After a recent meeting with older retirees in nursing homes (whose health now precludes them from doing much more than sitting and watching television), a common theme emerged – a regret of not doing a lot more when they were healthy and able.

Yes, I can hear you say ‘hindsight’ is a wonderful thing, and is a great foundation for making a decision but of course never a reality.

Now, I am certainly not saying that when people retire that they should go on a spending spree. But if a person’s perspective of retirement has been tainted by the looming negativity around ‘longevity risk’ and face retirement with a degree of fear and trepidation as an industry, have we now taken all the fun and anticipation out of a person’s pending retirement?

Retirement, as I have often stated, is a lot more than just ensuring a person has enough cash to fund their lifestyle. Let us make sure that when a person is planning their retirement that they do take a more holistic approach and consider their health, their objectives or goals, and their attitude – as well as their need for wealth. Let us make a person’s retirement a time to treasure which is full of memories, so when they are too old to do much more than sit and watch they do so without regrets.

Source: Mark Teale – Centrepoint Alliance

Are we working till we drop?

Many of us are coming to the realisation that our retirement dream is just that – a dream. Something that is elusive and perhaps not as attainable as we first thought it might be. We were looking at the world through rose-tinted glasses.

As a result – many of us may be confronted with having to modify our retirement plans. Rather than a luxury Winnebago in which to explore the great outdoors, we may have to ‘downsize’ our dream to a small caravan, a camper trailer, or even a two-person tent!

Perhaps, instead of our dream of a beach-front home – we may need to now look at smaller real estate, probably a street or two back from the beach, or even an apartment.

So how do we survive (and thrive) in an ever-changing world where the goal posts are constantly moving – sometimes due to changes in our own plans and circumstances, but often as a result of things which we have little, or no, control over. These include factors such as our health, the economy, changes to legislation and – even more frighteningly – the political instability of the world in which we live?

The answer lies in being adaptable. It means having the ability to change directions and travel down an altered path when life dictates a move in a different direction – or simply when we wake up one day and make the decision to travel via another fork in life’s road.

For many of us the realisation is that we may not be able to afford the type of retirement lifestyle we have always dreamt of.

So – what are the options?

If retirement is firmly on the agenda (through either choice or circumstance) the option may be to reframe our retirement objectives and pursue a more modest and affordable lifestyle.

However, for some, we may decide to continue to remain in the workforce a little longer than we may have intended – whether on a full-time, part-time, or casual basis. If we love what we do; continuing to work on a little longer may not be a difficult decision.

Of course; continued engagement in the work place delivers a number of benefits. Not only does it provide an opportunity to supplement, replace, or defer drawing down on our super and other savings – it provides an opportunity to remain engaged with other people, to deliver services to the broader community, and to pass on a lifetime of skills to the next generation.

However; there is a word of warning!

If remaining engaged in the workforce, whether it be part-time, full-time, casual, or even voluntary – we must ensure that we love what we do.

As is often said; if we love what we do we will never work a day in our life!

So – what are your plans for retirement? Does some form of continued workplace engagement beyond the ‘normal’ retirement date have a place in your plans?

 

Source:  Peter Kelly – Centrepoint Alliance