Planning for a longer retirement in Australia

Traditional retirement is evolving in several ways. The most prominent is the time we have in retirement compared to a generation or two before us. Financing a comfortable retirement is no longer an afterthought. A generation or two ago, retirement planning focused heavily on one question: How much do I need to retire?

The question now is: How do I make my money support the life I want throughout retirement?

Someone retiring at 65 could need their retirement strategy to support them for 25 or even 30 years. That makes retirement less like reaching a financial finish line and more like entering another stage of a long-term financial plan. With longevity comes changes to priorities.  We often see it in our work. The early years may involve more travel, entertainment and larger discretionary purchases. Later, spending may change as lifestyle, health, housing and care needs evolve. A good retirement plan needs to recognise those different stages.

One of the big challenges with retirement planning is that none of us knows exactly how long our retirement will last. Plan too conservatively, and you could unnecessarily restrict your lifestyle. Spend too freely in the early years, and you could reduce your financial flexibility later.

The answer isn’t necessarily to spend less. It is to understand what you can reasonably afford to spend. That requires looking beyond your super balance to consider your expected income, investments, cash reserves, Age Pension eligibility, home ownership, future expenditure and the level of assets you would like to leave behind.

It also means allowing for inflation. A retirement lasting several decades gives rising prices plenty of time to erode purchasing power. What supports a comfortable lifestyle at 65 may not buy the same lifestyle at 80. This is where your financial adviser is highly valuable. At First Financial, we use modelling tools to show you what this could look like for your circumstances.

The Intergenerational Report shed light on another consequence of an ageing population: increasing demand for healthcare and aged-care services. For individuals, that reinforces the importance of retaining financial flexibility later in life. You may need to modify your home, downsize, move closer to family or access additional support. Aged care may eventually become part of the conversation. It can be difficult to predict exactly what those costs will be, but they shouldn’t be ignored simply because they seem a long way off.

By now, you may have mixed feelings. The idea of a longer retirement is encouraging, but paying for it may feel daunting. Longevity planning shouldn’t be driven entirely by the fear of running out of money. The more positive question is: what could you do with those extra years? Working part-time because you enjoy it, rather than because you have to. Implementing a transition-to-retirement scheme (TRIS) is an example of how retirement planning can work favourably.

Naturally, living longer and having a longer retirement also means a longer investment horizon, which can provide more time to ride out normal market cycles. While short-term volatility can be uncomfortable, a well-diversified portfolio can help you avoid making investment decisions based solely on short-term market movements.

For some retirees, there is another consideration. Not all of their capital will necessarily be spent during their lifetime. Assets intended for children, grandchildren or other beneficiaries may have an even longer investment horizon, making estate planning and intergenerational wealth part of the investment conversation. The important point is that retirement doesn’t mean your money stops working. With potentially decades ahead, investing remains an important part of managing your wealth, protecting its purchasing power and maintaining financial flexibility throughout retirement.

Retirement planning is more than reaching a particular super balance. It’s about understanding how your super, investments, income, tax position, Centrelink entitlements and broader assets can work together to support the lifestyle you see for yourself. Because retirement could last decades, your plan shouldn’t remain static.

Regular reviews allow you to adjust your strategy as markets, legislation, spending and your own priorities change. Australians living longer is very good news. The question is whether your financial plan is designed to last just as long.

The team at First Financial comprises financial experts who help hundreds of Australians retire well and make informed, intelligent financial decisions. We cover everything from retirement and financial advice, investment and wealth management, superannuation and SMSF, insurance, tax, aged care, legal and lending services.

Contact us for holistic, well-rounded financial management strategies.