While you’re working, with money coming in, you can probably afford to live life the way you choose. But what will happen to your lifestyle when you retire?
When you’re used to a certain standard of living, it can be a shock if you can no longer afford to live that way. You would hate to have to cut back on life’s day-to-day pleasures, like a restaurant meal or weekend away. But that’s what can happen if you don’t prepare properly for retirement — so it’s important to plan ahead.
Here are three easy things you can do before you retire to help you keep the standard of living you enjoy today:
1. Work out how much you’ll need
It’s estimated that a couple needs about $57,665 a year in today’s dollars to retire comfortably[1]. But everyone’s situation is different. If you want to take regular overseas trips, buy a new car, renovate your home, or protect your health with private health insurance, you’ll need to factor in even more.
Then you’ll need to estimate how long your super needs to last, remembering that Australians, on average, are living longer than ever before.
2. Work out how much you’ll have
Once you’ve worked out how much you’ll need for retirement, it’s time to work out whether you’re likely to have enough. Consider your assets, including your super, home, shares or investment properties, as well as your liabilities, such as a mortgage or other debts.
Try MLC’s retirement tool to find out how much your dream retirement might cost, and how much you’re on track to save.
3. Close the gap
If you’re on track – well done! But, if you’re like most Australians, you may find that there’s a gap between the retirement you want and the one you can afford.
Luckily, there are some simple strategies to help you close it. And the sooner you start putting them in place, the better your retirement lifestyle can be.
Ask your employer to put extra, regular contributions from your pre-tax salary into your super. Known as salary sacrificing, this can also have favourable consequences for your tax today, especially if you’re in a high tax bracket. Or contribute a lump sum, such as a tax refund or bonus, to give an extra boost to your super when you can.
Once you turn 55, you might want to consider a Transition to Retirement strategy. This involves drawing a pension from your super while you’re still working and salary sacrificing a larger slice of your income. You’ll pay a tax rate of just 15% on your contributions and boost your retirement savings inside super at the same time.
Ask the experts
To find out more ways to avoid a lifestyle crash in retirement, speak to us today.
[1] AFSA (2014) ‘AFSA Retirement Standard’ http://www.superannuation.asn.au/resources/retirement-standard