The $64,000 Question

The $64,000 Question

In July “peoples advocate” Super Consumers Australia (SCA) published new figures on how much money you need when you retire. They found that you can get by on far less than the existing guidelines suggest.

If you own your own home, are part of a couple that stays together, and have living expenses of no more than $64,000 pa (after-tax), the SCA says you need only $402,000 in savings to retire at 65 years. That income partly comes from the age pension at 67 years. A couple can currently receive up to $38,709 pa in age pension by the way.

While the earnest maths from the SCA will be accurate, their findings lack some real-world experience. I’ve written previously about three phases of retirement. Phase one is often from your mid to late 50s when you step back from big hours and a stressful role. If you can take that through to your late 60s, you can really build your retirement savings through a combination of factors – you are still contributing to super, it will grow with an above-inflation return, and your phases two and three (full retirement and your latter years) are therefore shorter. In phase two you probably have plenty of time on your hands, and if you’re in good health, plenty of spending capacity. Many people are accustomed to spending far more than $64,000 pa pre-retirement, and it doesn’t simply dial down when you stop work.

New experiences can take priority over new possessions. If you’re doing a big overseas trip every year or two, even without turning left as you board the aircraft, you’ll probably need to allow an extra $20,000 pa.

There are a bunch of unforeseen events and other nice to haves that can also make that $402,000 turn out to be insufficient. If you are in an over 55s village or another flash strata development, your quarterly levies are significant. If you’re still in your family home, maintenance and repair costs are never-ending. Not every cost is heading north though. Even with high fuel costs, and the possible capital outlay of going electric, motor vehicle expenses aren’t what they were in past decades.

Nice to haves can include helping your adult children. Perhaps it’s a $50,000 home deposit each to get them to fly the coop. Or maybe it’s a bigger boat that has long been on your bucket list.

In my professional experience retirement shocks can emerge from quite a few directions. Care expenses for a loved one. Illness, accidents, fires and flood are few life events that can diminish your next egg too. And insurance doesn’t always put you back where you were.

Separation and divorce often occur once children are reared and individuals are casting ahead to the next stage of their life. Divorce is emotionally and financially draining. The rate of divorce has spiked up as we have tried to emerge from the worst of the Covid crisis in 2022. Throughout my personal life I must admit I’ve usually heard the male perspective. Professionally though, I’ve become increasingly attuned to the impact on a female’s retirement planning. When you add in the gender pay gap, and the super gap from time out of the workforce, divorce is a life event that is both a new start and another set-back.

If you are not getting your needs professionally modelled, estimate what you think you need, then add a healthy margin of error! Better for your money to outlive you, than for you to outlive your money. Life is never as neat as planned.

Greg Cook is a Certified Financial Planner and Chief Executive of Eureka Whittaker Macnaught
The information in this article is of a general nature. It is not personal advice and does not account for individual circumstances. Before making any financial decisions see a licensed financial planner, or talk to your super fund trustee.