Day: January 21, 2021

A million dollars is a figure that’s often cited as the amount you need to retire. But while $1 million doesn’t go as far as it used to – it only goes slightly above the median house price in Sydneyⁱ – for many people it still sounds like an impossibly large amount of money to save.

In reality, there’s no set figure you need to have accumulated in savings, super, real estate or other investments before you can retire. Instead, the size of the retirement nest egg you’ll need will really be determined by your individual goals and circumstances.

Calculate how much you need to retire

A large part of working out how much money you’ll need to cover your retirement depends on the sort of lifestyle you’d like to enjoy.

The Association of Superannuation Funds of Australia (ASFA) estimates that Australians aged around 65, who own their own home and are in relatively good health, will need the following amount of money each year in retirement, depending on whether they intend to live a modest lifestyle or a comfortable oneⁱⁱ:

	Modest lifestyle		Comfortable lifestyle
	Single	Couple	Single	Couple
Total per year	$27,902	$40,380	$43,687	$61,909

A modest retirement lifestyle is considered better than one solely dependent on the Age Pension but includes only basic activities. A comfortable retirement assumes you’ll be involved in a broad range of leisure and recreational activities, do some travelling, and have a good standard of living.

If you own your own home, another useful measure is that you’ll typically need around two-thirds (67%) of your pre-retirement income to maintain the same standard of living in retirementⁱⁱⁱ.

Calculate your day-to-day expenses

Your current monthly budget is a good place to start when trying to forecast your day-to-day living expenses in retirement, but don’t forget to factor in increases in the cost of living over time.

Some costs may be removed – for example, if you own your home you might be planning to have your mortgage paid off before you retire and perhaps the education costs of any children will also be out of the way by then. Work-related expenses, such as petrol or public transport costs, takeaway lunches, work clothes and dry cleaning will probably also be a thing of the past.

But you’ll still have ongoing costs such as utilities, food, healthcare and insurances to cover, along with the costs associated with owning a car, if you have one. And it’s likely that your spending on recreational activities could also increase once you have the time to enjoy them.

Your lifestyle

The type of lifestyle you’d like to enjoy in retirement could have a big impact on how much money you’ll need.

Give some thought to the things you like to do now that you may want to do more of in retirement, or any new hobbies you might like to take up, and the expenses involved in doing these.

And if you plan to travel – be it around Australia in a caravan or eventually by plane across the globe – you’ll need to plan for those costs, too.

Check your life expectancy

If you plan to retire at age 65 it’s possible that your retirement savings will need to last you at least 20 years, as life expectancies in Australia continue to increase. Currently men aged 65 can expect to live to 84.9 years, while women can expect to live to 87.6 years^iv. There are different living options available in retirement too, so it’s important to think about the long term when considering your financial situation once you stop working.

Check eligibility for government entitlements

Depending on your circumstances, you could be eligible for a part or full age pension payment, which could boost your retirement income.

Other government benefits you may be eligible for include Carer’s Allowance, Disability Support Pension, tax offsets or government loans.

You could also be eligible for a Seniors Card and/or a Pensioner Concession Card, which can help reduce the cost of public transport, some entertainment, healthcare and medications.

And don’t forget that once you hit 60, there’s a number of other benefits you might be able to access.

Options to boost your retirement funds

If you’re concerned you won’t have enough to retire and enjoy the lifestyle you’d like, you could consider working beyond the retirement age, whether full time or part time. Though this can affect access to your superannuation and other government benefits, so it’s important to do your research.

And it’s worth remembering that even beyond retirement your money can continue to grow if you leave your super invested and only draw it down as you need it via a pension, instead of taking it as a lump sum.

If you’re unsure about how much money you’ll need to retire, we can help you determine whether your retirement savings are on track.

i Core Logic, Hedonic Home Value Index, November 2020.

ii Association of Superannuation Funds of Australia (ASFA), Retirement Standard June 2020.

iii Moneysmart, How much super you need.

iv Australian Institute of Health and Welfare, Deaths in Australia, August 2020.

©AWM Services Pty Ltd. First published November 2020

Aussie parents have coughed up more than $26 million to help their adult kids since COVID-19 hit our shores – and one in five is at financial risk from doing so.

Parents helping their adult kids financially isn’t an unfamiliar concept in this country, but figures reveal mums and dads have forked out approximately $26.8 million since the outbreak of COVID-19 in Australiaⁱ.

Below we look at what’s going on across the nation and how you can make sure your own wellbeing doesn’t fall by the wayside, particularly if you’re the one in five at financial risk by providing such assistanceⁱⁱ.

What’s happening around Australia?

About 30% of Aussie parents have been providing financial support to their adult kids , as job losses and wage reductions hit many young Aussies hardⁱⁱⁱ.

According to findings from financial comparison group Mozo, the most popular forms of assistance included help with^iv:

• • day-to-day expenses, such as utility bills and groceries – 48%

 

• • car expenses – 29%

 

• • purchases for the home – 24%

 

• • medical expenses – 19%

 

• electronics – 18%.

Meanwhile, the majority of parents didn’t expect to be paid back, despite the fact that one in five was at financial risk by offering such support, with 67% having to take money from their savings to help their adult kids and 37% having to cut back on expenses^v.

A survey by another financial comparison group Finder found that 17% of parents were also letting their adult kids live at home rent free, while one in 10 was providing free childcare for their grandchildren^vi.

Have you thought about your retirement?

You might be a number of years away yet, but retirement is worth a thought when considering the costs of your adult children living at home, or out of home and still needing your support.

After all, life expectancy is increasing in Australia, which means you’ll probably need to account for a longer retirement than your parents. If you retire at 60 and live beyond age 85 for instance, you may be looking at funding a retirement that could span more than 25 years.

If you’re wondering how much money you might need, the Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget needed to fund different retirement lifestyles, based on an assumption people own their home outright and are relatively healthy^vii.

September 2020 figures show individuals and couples, around age 65, looking to retire today would need an annual budget of $43,901 and $62,083 respectively to fund a comfortable lifestyle, or $27,987 and $40,440 respectively to live a modest lifestyle^viii.

If you’re banking on the government’s Age Pension supporting you, keep in mind to be eligible for a full or part Age Pension you must satisfy an income test and an assets test, as well as other requirements^ix.

Ways you could help your kids be financially independent

While many parents provide financial support to their children, providing adult kids with regular cash handouts (particularly if you’re giving them more than may be necessary) could lead to poor financial choices and them living beyond their means because they’ve become too reliant on the bank of mum and dad.

To assist your kids, here are some things to think about.

• • Teach them how to budget and save, about the consequences of unsustainable debt and what benefits an emergency fund might have.

 

• • Challenge them to find a better deal with a different (phone, internet or credit card) provider and give them some incentive to do it. These are real life lessons that will hopefully stick.

 

• • Explain how a loan works. Going through your loan statements with your kids is a great opportunity for some financial education. Plus, you can show them how much extra they could end up forking out if they don’t take note of the interest rates they sign up to.

 

• If your kids are involved in time intensive study and are finding it difficult to commit to part-time work, it’s also an idea to look into government allowances they may be entitled to, noting Coronavirus stimulus payments have also been extended into 2021 if they’re finding it difficult to secure work.

It can be a tricky balancing act, providing financial support for your children while also keeping an eye on your retirement plans and we are here to help.

i – v Mozo: 30% of parents financially supporting their children during COVID-19

vi Finder: Bank of Mum and Dad: 44% of parents subsidise the lives of their adult kids

vii – viii ASFA Retirement Standard

ix Australian Government – How much you can get

©AWM Services Pty Ltd. First published December 2020

Being in control of your finances makes you feel good, but the twists and turns of 2020 have meant this isn’t always possible. We look at some of the year’s top challenges for personal finance and how to manage them as we move into 2021.

Mental, physical and financial wellbeing are interconnected – and in 2020, we’re feeling it more than ever. Research conducted by AMP has found that severe and moderate levels of financial stress are impacting 1.8 million Australian workers. In total, 50% of all Australian workers reported some level of stress about their financesⁱ.

With the 2020 COVID-19 pandemic producing economic shockwaves most could never have predicted, avoiding this stress isn’t always easy.

Find out what steps you can take to start 2021 with your finances – and your wellbeing – in check.

If you’ve… had your cashflow impacted

Many Australians lost their job or had work hours reduced in 2020, through no fault of their own. While government stimulus measures such as the JobKeeper supplement gave a boost to millions of household budgets, the amount will be tapering off again in early January before wrapping up at the end of Marchⁱⁱ. Changes like these may have a significant impact on your personal cash flow.

If this financial situation sounds familiar, the first step is to revisit your budget – key your numbers into this calculator for a snapshot of your expected new income and your expenses. Next, review your spending habits and determine where you can save money and bring expenses in line with your current or projected cash flow. Following the 50/20/30 rule could be a practical place to start.

If you’ve… taken a hit to your super balance

The COVID-19 Early Release Scheme – designed to assist Australians facing financial hardship by giving them early access to their superannuation funds – has provided immediate relief for more than 3 million peopleⁱⁱⁱ.

If you made an early super withdrawal, you may like to consider how you could rebuild this money when you’re financially secure, whether that’s through additional personal contributions, spousal contributions, government assistance or super consolidation.

This is particularly important for women, with research showing that pre-COVID-19, Australian women retired with an average of 25% less super than men. In 2020, this gap grew to 29%, meaning women typically enter retirement with almost one-third less money than men.

Even if you haven’t accessed your super early, this year’s global financial fluctuations may still have affected your retirement savings balance.

Whether your superannuation account has been depleted by early access or falling sharemarket prices (or both), if you’re close to retirement, you may need to defer your plans to leave the workforce. Alternatively, look at strategies to transition out of full-time work so you can ease into retirement with sufficient finances to live the life you want.

If you’ve… gotten into or increased debt

Around three quarters of Australian households have some kind of debt, whether credit cards, home loans or student loans. In fact, the average household owes $168,600^iv.

This year, there have been additional reasons to consider taking on more debt: 42% of Australian employees say their finances have been negatively impacted by the pandemic through business and employment disruption^v.

However, if your accounts have been overdrawn or you run late on repayments, it could impact your credit score, and then your ability to get a future loan. You might consider these simple strategies to manage your debt – from consolidating debts to evaluating which debt to pay off first.

If you’ve… been caught short

Australians are banking money at a record rate, with research showing household savings as a share of gross disposable income reached a high of 7.9% this year, compared to 2.7% in the prior year^vi. But while this is the average, it’s certainly not true for all households.

Data collected by the Australian Bureau of Statistics in August 2020 showed that 14% of Australian households fear they will not be able to pay their bills on time under current economic conditions^vii, and that 64% of the Australians receiving the JobKeeper payment were receiving less income than their usual pay. These concerns spotlight the need that now, more than ever, is the time to have savings tucked away for a rainy day.

Unexpected car trouble, those extra school fees you hadn’t budgeted for, an unexpected medical or vet bill – emergency savings can cover many unforeseen costs and may save you from falling into debt when you can least afford it.

Creating an emergency fund doesn’t necessarily mean depriving yourself of everyday enjoyment – it simply requires a realistic assessment of your income and spending habits, with plans in place to reach your goals. Learn why you need an emergency fund and how to build one fast.

Whatever 2021 throws your way, it’s important to have an expert in your corner to provide guidance and a helping hand. We are here for you.

i AMP Newsroom (2020): 1.8 million Australian workers suffering prolonged financial stress, costing $31 billion in lost productivity

ii The Treasury: Economic Response to the Coronavirus

iii Australian Prudential Regulation Authority (November 2020): COVID-19 Early Release Scheme – Issue 28

iv Australian Bureau of Statistics (2018): Household Debt and Over-Indebtedness in Australia

v AMP Newsroom (2020): 1.8 million Australian workers suffering prolonged financial stress, costing $31 billion in lost productivity

vi IBISWorld (September 2020): Households Stash Cash as COVID-19 Bites.

vii Australian Bureau of Statistics (August 2020): Household Impacts of COVID-19 Survey.

©AWM Services Pty Ltd. First published December 2020