How Do I Know When I Can Afford To Retire?

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How Do I Know When I Can Afford To Retire?

Written by: Samantha Butcher l Advisory Team


Technically, you can retire whenever you want!  There is a misconception that you cannot retire until you are age 67, age pension age, or perhaps age 65 which is when you gain full access to your superannuation.  However, the truth is, you can retire at any age.  Suppose you choose to retire before you are legally allowed to access your superannuation (more on that one later), or before you are eligible for the age pension. In that case, you will be required to self-fund your retirement i.e. live off accessible savings.

So, I think the question is not “when can I retire?”, but rather “when can I afford to retire?”  The answer to this question will be unique to everyone because we all have our own goals i.e. what does retirement look like for you, are you a global traveller or are you someone who likes to travel domestically in your caravan), and we all have a different financial situation, a different ‘starting position’.

Financial Goals… Let’s Talk Dollars!

Each quarter the Association of Superannuation Funds of Australia (ASFA) releases figures on the required income required to maintain a comfortable or a modest lifestyle, whether you are single or a couple.  As of March 2023, for the first time, ASFA estimate that retiring couples will now require just over $70,000 per annum to maintain a comfortable lifestyle, $50,000 per annum for singles.  This compares to approximately $46,000 and $32,000 for a modest lifestyle for couples and singles respectively.

What exactly determines a comfortable lifestyle as opposed to a modest lifestyle?  ASFA highlights the difference on their website as follows:

A modest reitrement lifestyle is considered better than the Age Pension, but still only allows for the basis.  A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occassionally international holiday travel.

To help achieve the level of income required for a comfortable retirement, the Association of Superannuation Funds of Australia suggests that couples will need $690,000 in superannuation at retirement, and singles $595,000.  Interestingly, they suggest a superannuation balance of $100,000 is required for both couples and singles to maintain a modest lifestyle.

So, When Can I Access My Superannuation?

You must meet a condition of release before you can access your superannuation:

  • The first condition is that you must have reached your preservation age.  Anyone born up until 30 June 1964 has already met preservation age.  The rest of the population must wait until they are age 60 before they reach preservation age;
  • The second condition is that you must have ceased working unless you are commencing a transition to retirement income stream where access to super is limited to 10% of your fund balance; and
  • Beyond age 65, you have full access to superannuation whether you are working or not.

Want to know more about the transition to a retirement income stream?  Check out this previous article we put together: How Does The Transition To Retirement Work?

What About The Age Pension?

The age pension is means tested which means your income and assets will be assessed to determine if you are eligible for any entitlement.  You can apply from age 67, even if your spouse is not yet also age pension age.  Services Australia will include all assets in both your and your partner’s name when determining your eligibility.

Want to know more about the age pension?  Check out this previous article we put together: How Much Age Pension Will I Get + How Can I Maximise It?

Steps to Consider from the Financial Professionals

Determining when you can afford to retire involves careful consideration of several factors, including your financial situation, lifestyle expectations, and future goals.  Here are some key steps to help you assess your readiness for retirement:

  • Evaluate your financial readiness: take a close look at your current financial situation.  Calculate your net worth by subtracting your liabilities (such as debts) from your assets (such as savings, investments, and property).
  • Expenses and budget: analyse your current spending patterns and estimate your expected expenses in retirement.  Consider factors such as housing, healthcare, travel, hobbies, and any other lifestyle choices.  Create a budget that reflects your post-retirement financial requirements.
  • Age pension benefits: understand how much you can expect to receive from Services Australia (Centrelink) if anything, as this will help reduce how much you have to draw down from your superannuation and other investments to fund your retirement.
  • Determine your retirement income: estimate the income you can generate from your investments, such as dividends, interest, or rental properties which will help work out how much you need to ‘top up’ from super.
  • Other income sources: consider any other sources of income you may have in retirement, such as part-time work.
  • Consider inflation and longevity: account for the impact of inflation on your retirement expenses and the potential duration of your retirement.  Remember that your retirement savings need to last throughout your retirement years.
  • Run retirement simulations: utilise retirement calculators or seek the guidance of a financial adviser who can help run simulations based on your financial data.  These simulations can provide insights into whether your savings and projected income will be sufficient to sustain your desired lifestyle throughout retirement.
  • Assess your risk toleranceconsider your comfort level with financial risk.  Depending on your risk tolerance, you may choose to adjust your investment strategies and asset allocation to balance potential returns with the need to preserve capital.
  • Plan for healthcare costs: medical expenses tend to increase with age.  Account for potential healthcare costs by considering health insurance, Medicare, and long-term care insurance.
  • Evaluate your lifestyle expectations: determine the lifestyle you desire in retirement.  If you have expensive hobbies or extensive travel plans, you may need a larger retirement fund to support those activities.
  • Revisit and adjust your plan periodically: as you near retirement, regularly review your financial plan, taking into account changes in your income, expenses, and goals.  Make adjustments as needed to ensure your retirement plan remains on track.

Canny Advisory + Your Retirement Plan

The importance of retirement planning is up to you – how do you envisage your retirement?  Retirement planning, for some people, can be the great unknown – when can I retire?  How much do I need?  What can I do to put myself in a better position?

Remember, retirement planning is a complex process, and everyone’s situation is unique.  If you are finding yourself asking questions about your retirement years, get in touch with our team to have a chat so we can provide you with personalised guidance based on your specific circumstances, helping you make an informed decision about your retirement readiness.

Canny Advisory Director and Financial Adviser Samantha Butcher stands centre in the photograph wearing a white long sleeve top and a black skirt.

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