How much can you safely spend in retirement? We crunched the numbers
As you read this I’ll be enjoying a whole hour on 3AW Melbourne with the legendary radio host, Darren James (DJ) on Sunday Breakfast at 9am this morning. If you’re in Melbourne, have a listen and tell me if you hear me!
This is the easy-read Sunday edition of my newsletter designed to bring you my column in The Age, The Sydney Morning Herald, Brisbane Times and WA Today on Sundays. This week it is all about how much you can afford to spend in retirement when you look at your super balance going in. We crunched the numbers, contemplating how your superannuation pairs up with the age pension and how much you might be able to ‘safely spend’ over an average lifetime, and a longer than average lifetime.
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There’s two other things I’d love to bring to your attention today, before you dive into the article below.
The Epic ‘Retirement Planning’ Survey is roaring. If you haven’t responded yet - please consider doing it today.
It’s an important survey that will allow me to better understand you and guide the industry to give you more of what you need. It dives into how you feel about the process of ‘retirement planning,’ what tools you are using and how you are progressing. It also gives me a read on how confident you feel, and what you might need to help you.
It’s all multi-choice so it should be quick and easy. And, you might find some of the questions really get you thinking about the process of retiring, and what you could be doing vs what you are doing. So dive in and help me out - please.
The Epic Retirement Course is going so well I am ready to plan the next one.
I am taking expressions of interest for the next Epic Retirement 6 week program which is being set up for May/June. We’re up to week 3 of the Mar/April program and so far it’s going swimmingly! We’ve had feedback this week like:
“I am learning a lot and finding the course enjoyable,”
“The course is really informative and presented well and the content is exactly what I was looking for,” and
“Loving the course so far, getting a lot out of it - thank you!”
So if you want to get in on our next one, sign up for the information here. There will be limited earlybird-priced spots this time.
Express your interest for the course
I had a ripper of a week in Sydney this week. I’ll tell you all about it on Tuesday in the big epic newsletter.
Have a lovely Sunday and Melbournites don’t forget to listen in to Breakfast on 3AW. Make it epic!
Many thanks! Bec Wilson
Author, podcast host, columnist, retirement educator, and guest speaker
How much can you safely spend in retirement? We crunched the numbers
Most people, whether individuals or a couple, set a savings target for retirement, something similar to “I want to have $200,000, $400,000, $800,000 or $1,000,000, or perhaps even more available as a lump sum to fund my retirement when I get there.”
Even when you have a healthy lump sum, it’s pretty hard to work out how much money that will allow you to safely spend each year without running out of money. So this week, I’m exploring how much you can afford to spend if you want your money to last a lifetime, and what level of income that will support when you take in the age pension too.
But before we get to the big numbers, we need to understand a couple of key concepts that go into working this out.
First there’s how much do we need to live comfortably in retirement. This forms the baseline for spending on everyday living. The Association of Superannuation Funds of Australia (ASFA) says that a retired couple aged 65-84 needs $72,148 per year, and a single person needs $51,278 to live in ‘comfort’. If they’re living a more modest lifestyle, a couple needs $46,994 and a single person needs $32,665.
This assumes that you own your own home outright, and can access a part-aged pension. These amounts alone won’t give you an epic retirement per se, but it will provide us a number to compare with when we explore how much we can spend and how much we need to spend on costs of living.
The second important concept is the age pension, which 62 per cent of Australians use. For those people, the maximum amount they can take is $43,752 for a couple and $29,023 for a single person, and in addition to this, they become eligible for rent assistance which could be up to $177.20 per fortnight for couples or $188.20 per fortnight for single people.
The third important concept is how you want to budget for your own spending in retirement and in what type of spending pattern. At the core, when we talk about safe spending, we talk about safely planning for your needs, or your cost of living first, then building an additional budget for your wants, or your one-off costs and retirement experiences.
Fourth, a key ingredient of safe spending is considering how long you might live. Life expectancy for an average Australian over 65 right now is 85.3 for men and 88 for women. Any planning for safe spending really has to consider the possibility of living longer than the median life expectancy, which is more possible than ever with modern health standards.And finally, the concept of ‘safe spending’ itself, which means to have confidence to spend your retirement savings and have a 9 out of 10 chance that you will have enough money to reach your life expectancy, or perhaps even three or six years beyond it.
So let’s talk safe spending amounts, starting with a 67-year-old homeowner couple with a variety of different joint superannuation balances as they reach retirement. In the below table you’ll see that the team from Challenger have plotted how much a retired couple could draw down with a 90 per cent degree of confidence their money could last to life expectancy.
There’s lots more in this article including two really powerful tables. It has been published in full in print and digital in the Sydney Morning Herald, The Age, The Brisbane Times and WA Today Money section today. You can read it here (without a paywall).
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