Everyone agrees that there are mainly three questions pre-retirees have when considering retirement:

1.  Can I afford to retire?
Most clients want to understand how much they will need before they retire.  There are several factors that must be taken into consideration when working out what this amount is.  Remember, every person is different and so each person will have a different amount they will require.  Even so, there are some things we can do to help come to a figure that everyone is happy with.

Firstly, we must understand what your spending habits will be in retirement.  This is usually the biggest consideration pre-retirees must take into account.  No one likes to budget however the retirees who enjoy retirement the most our those who have a budget worked out and stick to it.

Your budget should include:

  • Needs: Rent, mortgage payments, strata and/or council fees and levies, food, clothing, bills and health expenses
  • Wants: Holidays, meals out, entertainment, gifts
  • A ‘rainy day’ fund: A modest lump sum to have on hand for unforeseen costs such as car, home repairs or new appliances
  • Savings and estate planning: Putting money aside to provide for family and/or friends
  • Anything else that may be relevant to your circumstances

Next, we have to work out what other ‘one-off’ expenses will be required – we call these the ‘wants’.  These can be holidays overseas, the new or next car, helping the kids out (a get a few laughs when I ask this question), and possible home improvements that might be required.  It is important that these items are taken into consideration and funds are available when the time comes.

We also need to allow for unexpected events or ‘rainy days’.  Some advisers will keep a certain amount of cash on hand whilst others will increase total expenditure by a percentage amount.  We discuss this with clients as not everyone can or wants to do the same thing.

The Australian Securities & Investment Commission’s (ASIC) MoneySmart website has a helpful budgeting tool which can help you calculate your expenses.

Lastly, we need to consider how long our clients believe they are going to live.  Whilst there are life expectancy tables that purport to indicate how long someone will live too, these are only guides as they are ‘averages’ of the total sample size.  Again, every client is different and we need to establish how long each client believes they will live too and include this figure in our calculations.

2. When can I retire?

Once we establish what amount a client needs for retirement, the next question we need to answer is when they can retire.

This can be an exciting time for some clients when they come to the realization that they can retire sooner than even they had anticipated.  However, for some it can be quite daunting.  If clients have not been investing/saving for retirement and do not have a lot of funds then they may have to either put off retirement for a little bit longer or revisit their budget to reduce their spending.

3. What social security benefits can I receive?

Regardless of how much money or assets clients have in place, nearly all clients would like to know what benefits they may be entitled to when they retire.  It is important to understand that it is getting harder and harder to find ways for clients who currently are not entitled to the Age Pension to reduce their assets so they can receive the Age Pension.  It is really important to seek financial planning advice at least 5 years prior to retirement so that their is time to implement appropriate strategies if the client really wants to receive a part Age Pension.

At Find Retirement, we can help you answer these questions.


Further Readings

Financial decisions at retirement (https://www.moneysmart.gov.au/media/332959/financial-decisions-at-retirement.pdf). MoneySmart