The real question is: Are your savings prepared to outlast your retirement? Planning for the years beyond your working life involves more than just saving money. It’s about ensuring your resources will sustain your desired lifestyle, allowing you to enjoy every moment to the fullest. There are several key factors to consider in this process.
At First Financial, we specialise in helping you achieve your dream retirement. Our personalised approach to retirement planning recognises that everyone’s situation is unique, and how long your savings will last depends on these individual aspects. It’s ultimately a balancing act.
Here’s what you need to consider on the path to securing financial stability for life.
Understanding retirement expenses
The first step in determining how long your money will last in retirement is to thoroughly assess your spending needs and potential expenses. Start by categorising your costs into regular, essential living expenses such as housing, healthcare, food and other necessities.
Next, consider your desired discretionary spending items, including travel, hobbies and entertainment. These expenses vary, but they play a significant role in your quality of life during retirement. Prioritising what matters most to you can help you make sustainable budgeting decisions.
Finally, it’s important to account for inflation and unexpected expenses. Prices will rise over time and unforeseen costs, such as medical emergencies, can quickly deplete your savings. By planning for these variables, you can create a more resilient, adaptable plan.
Strategic withdrawals in retirement
Superannuation isn’t a “save it, take it, and run” fund once you retire. How you manage withdrawals can impact the longevity of your savings. While you can take lump sum withdrawals, many people opt for a regular pension instead.
The typical minimum withdrawal rate starts at around 4% annually at the beginning of retirement and can increase to 14% as you age. This rate can vary based on your savings and spending needs. If you’re not immediately eligible for the age pension, your strategy.
Planning for longevity
With increasing life expectancy—currently around 81 years for men and 85 years for women—it’s crucial to prepare for a retirement that could span 30 years or more. This means anticipating the costs of advanced age, including healthcare and assisted living, and ensuring your resources are sufficient to cover these needs.
You might consider setting aside a portion of your savings for your later years, either through insurance or a dedicated fund. This way, you’ll have extra resources available to cover higher expenses as you age.
As you plan for retirement, evaluating options like downsizing or relocating can be beneficial. These changes can lower your living expenses, help your savings go further, and support your financial goals throughout your lifetime.
Planning for the future
As mentioned, how long your money will last in retirement depends on your personal goals and needs. For instance, take the fictional example of Robert and Julie, high-income earners in their early 60s with $2 million in savings and assets. They aim for a vibrant retirement filled with extensive overseas travel and some luxury activities.
To achieve this, they withdraw $120,000 annually from their superannuation as they don’t initially qualify for the age pension. Depending on investment returns, their savings may decrease during this period, which is a normal part of self-funded retirement.
By their mid to late 80s, Robert and Julie may begin to qualify for a partial age pension. As their funds decrease over time, their eligibility for the pension will increase.
This shift happens because, while their assets decline, the threshold for receiving the pension rises, leading to a point where they start receiving that support. This additional income will then help sustain their retirement alongside their superannuation.
Balancing spending decisions is crucial. If Robert and Julie decide to increase their annual spending to $140,000 to enjoy more of their retirement in the early years, they will deplete their savings faster. However, this higher spending could also lead to qualifying for the age pension sooner, potentially around their mid-70s. This adjustment means their pension support would begin earlier and gradually increase over time, helping to sustain their lifestyle.
Talk to the retirement planning experts
At First Financial, we assist clients like Robert and Julie in finding the right balance between enjoying their retirement now and preserving funds for the future. We provide forecasts that allow them to see the impact of spending more in the early years versus saving for later, helping them make informed decisions that align with their personal goals to ensure their retirement funds last as long as possible.
If you’re unsure how long your retirement funds will last—whether they’ll sustain you for 20, 30 years, or more—our team can provide clarity. We’ll work with you to outline your financial goals and craft a strategy to achieve them. Retirement doesn’t have to mean a drop in income; it just requires careful planning.
Contact a friendly member of our team to learn more about retirement planning or start on the pathway to wealth today.
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