The Road Ahead : February March 2015
ROADAHEAD.COM.AU 24 THE ROAD AHEAD FEB/MAR 2015 LIFESTYLE | DOLLARS+$ENSE RESEARCH BY MERCER reveals many Australians are in for a shock when they retire as there may well be a significant gap between their expectations and reality. The solution is to start planning as young as possible, and set some specific goals such as exactly when you want to retire, and how much you'll spend when you do. A simple rule is that your retirement capital should be around 15 times your expected expenditure. For example, if you feel you will spend $50,000 a year in retirement, you will need $700,000 in your portfolio. This may seem a huge amount of money, but don't despair -- the first step in solving a problem is to define it. For starters, our generous social security system will be there as a backup. A couple of pensionable age who retired now with $150,000 in financial assets should qualify for around $33,000 a year in age pension. If their expenditure goal in retirement was $50,000 a year, the additional amount needed drops to $17,000 a year when the age pension is taken into account. Using the 15 times rule, this means they need only $255,000 in super to get them through. LET'S WORK THROUGH A CASE STUDY: Bob is 50 and earns $90,000 a year, his partner does not work. Their home is worth $700,000 less a mortgage of $150,000, and his work superannuation is currently $200,000. If inflation is 3% per annum, they will need $82,500 a year when he is 65. Using the 15 times rule, he needs to accumulate superannuation of $1.24 million. That sounds a vast sum, but we are talking 15 years into the future. If his income rises by 4% per annum, and his super earns 8% per annum, there should be $894,000 in super Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: email@example.com. retirement reality check DON'T LEAVE YOUR LIFESTYLE TO LUCK: PLAN EARLY TO ENSURE YOU HAVE SUFFICIENT SAVINGS. STORY NOEL WHITTAKER by the time he is 65. They will be $346,000 short of their target, and unlikely to qualify for any government assistance. The problem could be solved by Bob working longer, or encouraging his partner to work part time, or by simply increasing his superannuation contributions by starting a salary sacrifice program. One option is to salary sacrifice $1168 a month. After deducting the 15% contributions tax, this should provide the extra $346,000 needed if his fund earns 8%. Of course, investing is more of an art than a science, and many things could happen to change the outcome. On the downside, Bob could lose his job or suffer a major illness -- on the plus side, he may qualify for a hefty pay rise, his partner may obtain a job, or one of them may inherit a substantial legacy from their parents. Individual circumstances change continually, which is why ongoing advice is vital. ... start planning as young as possible, and set some specific goals such as exactly when you want to retire...
April 1st 2015