The following article is an extract from Jennifer Lancaster’s book, Sack Your Financial Planner

 

With people living longer, we are all going to need a lot more money than we imagine. Many have disruptions to working life (like having babies), so just compulsory super is probably not enough to cover the many years we might survive. Australia’s new Simplified Super system will improve payouts and super pensions, but it may not be the answer to our prayers. 

 

“How much will I need?” is the catchcry. That all depends on your needs and expectations: do you want to live on a lesser salary than what you are used to, such as 50%? Do you think that your super capital’s returns will keep up with inflation? Would you like a private nurse? Is a life-saving operation going to cripple you financially?  What about travelling?

 

Financial advisers might suggest that you are going to need $1 million to retire on for 25 years. This is to spur you to plough more into super and managed funds from your income. Of course it is up to you. You may want to strike the fine balance of living well now but sacrificing a small amount to super, so that you can live without hardship later.

 

The Association of Superannuation Funds of Australia believes a single person needs an annual income of $35,668 and a couple needs $47,766 to live comfortably in retirement. Varying amounts up to $700,000 are needed for this current target, depending on retirement age (and age you are going to live to!).

 

Check how long your own money will last with the range of super calculators at www.sunsuper.com.au/content/superCalculators.cfm.

 

What about the Age Pension?  If you are near retiring age and you can live on $14,217 a year (singles) or $23,754 a year (couples), you don’t need this book. But relying solely on the Pension in the future may not be viable; a part pension is more probable. The sheer number of baby boomers retiring will mean a continuation of miserly Government pensions, and those unprepared may need to delay retirement and work on. Currently the Government rewards the over 65’s who keep working – over 960 hours per year – under a pension bonus scheme, with a lump sum of $1,336 (year 1) up to $33,409 maximum (year 5) for a single registered person (see Centrelink). These types of schemes and beneficial changes to superannuation pave the way for the Federal Government’s grand plan for us: self-funded retirement.

 

Rising Cost of Living

It seems clear that the cost of living is going to rise dramatically, with the droughts and fewer oil resources having deep impacts on groceries, water, petrol and transport costs. Already we are seeing a rise in food costs. Health costs continue to spiral upwards every year. Truly, I am not trying to make you depressed!

 

I firmly believe everyone can create their own goals unhindered by Government rules, for example, to have an income stream of $80,000 per year, or $2 million net worth. I suggest such high goals because you never know what is around the corner for you and your family. Why settle for retiring on half of what you now earn?


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