BUSINESS | MONEY

Retirement is a $60,000 question

Michelle Baltazar

Relaxing at the beach or taking that Carribean cruise when you retire comes at a cost and it’s much, much, much higher than you think.

For many years, an association representing super funds, aptly called the Association of Superannuation Funds in Australia (ASFA), decided to do some number-crunching on how much – exactly – Australians should save to cover their expenses come retirement.

This covers day-to-day expenses for food, clothes and transport. ASFA has also incorporated the fact that retirees these days expect to go on holidays and buy more computing equipment or electronic gadgets than previous generations.

And a major expense included in this so-called ‘ASFA Retirement Standard’ is the all-too-important healthcare costs (The predisposal of Filipinos to diabetes and diabetes-related ailments means this is a serious financial issue).

Money for jamThis year, ASFA reckons that covering all of the abovementioned costs work out to be at least $53,000 a year per couple. Suppose you retire at 65 years old and expect to live for at least 10 more years, then it’s safe to say you should be thinking about how you can have enough assets today to have $530,000 to spare over 10 years.

Put another way, assuming you’re thinking of putting money into either the sharemarket or property (or both), and expect to earn at least 10 per cent per year from those assets, then you really should be working at accumulating at least $530,000 worth of assets today.

But life isn’t quite that simple. Some investments give you 10 per cent, others don’t. Worse, in the case where the market went through a really bad patch (technically called the Global Financial Crisis or GFC) some people didn’t make any money at all.

Mind you, the $53,000 per year of spend is for a couple that want to live ‘comfortably’. According to ASFA, living ‘modestly’ requires a much lower yearly spend of $30,700.

Without complicating it too much, just remember that if you're at least 30 to 40 years away from retirement, then you have to think of what these numbers are in 'real' dollars. For example, $53,000 today might be equivalent to saving $90,000 in 30 years (just plucking $90k as a rough number to illustrate the nasty effect of inflation).

The back-up plan for most people is the Age Pension, but then you’ll be held hostage by the pension policy by the time you retire and you just don’t know what the government is going to do (a lot of the government policies these days are designed to ‘wean’ people off age pension and financially support themselves independently).

Whether it’s $53,000 or $30,700 of living expenses per year, one thing is clear: there’s never a better day to save than yesterday. The next best option is to start saving today and there are plenty of websites available that can give you some guide on how to build your retirement nest egg. The websites listed below are good places to start.

www.moneysmart.gov.au
www.goodadvice.com.au
www.superannuation.asn.au 

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