Will you have enough to retire?
Will I have enough to retire? If you are approaching retirement, then chances are you’ve asked yourself this question at least once.
While there are a variety of predictions in the market place on what the average annual income is needed, we have found from our cost of living analysis that most retirees who have come to us for financial advice require an income on average of $72,000 per annum to cover their basic living needs. This figure is expected to be at least $79,500 in five years and $88,000 in 10 years.
But will you have sufficient superannuation and other assets that will provide you with an income of these levels by the time you retire?
Let’s put this into perspective:
Take, for instance, Andy and Sue (not their real names) who are both aged 50 and came in to see me for financial advice early in 2019. They would like to retire at age 60 in 10 years, and they feel financially secure with:
- A home worth $2.4m
- A rental property with an estimated market value of $950,000 with a mortgage of $545,000.
- $600,000 combined in superannuation.
- The expectation that their three children to be financially independent by the time they retire.
- Andy earning $105,000 each year and Sue earning $45,000 each year
- Superannuation balances at $410,000 and $190,000 respectively.
- Their employers contributing the necessary 9.5% concessional superannuation contributions each year, and their super fund projections showing that they will have a combined balance of more than $1.44 million by retirement ($1.18m in today’s dollars) which appears sufficient.
- While they are comfortable living off a net income of $120,000 at present, they hope that the cost savings from their three children being financially independent will allow them to live off an income of $90,000 per annum (indexed by CPI) when they retire in 10 years time.
- At retirement, they plan to pay out the mortgage on the rental property from their superannuation funds and will use the balance of their superannuation ($896,000) and net rental income $32,825 per annum to provide for their living needs.
- From their superannuation balance at retirement of Andy and Sue would expect a regular income stream of approximately $3,733 per month ($44,800 per annum), indexed by CPI.
- In combination with their rental income, they should have an income stream of $77,625 per annum.
But in reality, this will be well below the $90,000 they will need to cover their basic living needs in retirement. Taking into account that they would like to have an overseas trip every second year in retirement, they are well short of where they need to be.
We anticipate that they would have a negative cash flow of $12,000 each year, and in the years where they travel, they will be down $32,000.
Our financial advice provided Andy and Sue with the strategic financial steps with their superannuation, cash flow, mortgage and tax that they should take over the next decade to ensure that they do have sufficient wealth accumulated in the right assets by the time they retire.
I’ll provide an outline in a future article for the strategic steps that they received through our financial advice that will ensure that they are able to live off an additional $187,650 income over the first five years of their retirement. This will not only enable them to have more than the minimum $90,000 per annum that they required for their basic living needs, but it would allow them to enjoy an overseas holiday every year in retirement, rather than just every second year.
If you are wondering if you have enough to retire, the first step is to obtain the quality financial advice you need and establish a Retirement Roadmap to get you where you need to be. Call us today to find out how we can help you achieve that.