Funding retirement
With the federal government wanting to lift the retirement age to 70 by 2035, as put forward in its recent, widely criticised budget, it will be interesting to see in what form, if any, this controversial measure manages to make its way through a hostile senate.
According to the Australian Financial Review* , Mr Hockey said he expected Labor to support the change but opposition families spokeswoman Jenny Macklin said it was a broken promise and Labor would not be supporting it.
“The Prime Minister has no mandate to make changes to pensions in this year’s budget – regardless of when these measures commence,’’ she said.
Regardless what happens politically in the coming months, the general impetus to lift the retirement age is a response to the simple fact that on average we are living longer and somehow need to find enough money to last for our ever increasing life spans. One obvious answer is to work for longer, but not everyone’s happy about that.
A key question is, how much money do we need to enjoy a reasonable retirement? That can determine how much longer we need to work for.
The Association of Superannuation Funds of Australia (ASFA)’s ‘Retirement Standard’ ** – which looks at a basket of costs that retirees typically need to meet, shows that in general, a couple looking to achieve a ‘comfortable’ retirement needs to spend $57,817 a year, while those seeking a ‘modest’ retirement lifestyle need to spend $33,509 a year.
As for building up sufficient investment assets – including super, shares, managed funds and investment property, to help generate such incomes, ipac financial planner Paul Clitheroe often quotes a formula that provides a general indication of what sized nest egg you need to retire at different ages – before 70.
Clitheroe says, “Here’s a quick calculation you can do to give you the approximate level of accumulated funds you would need to provide certain levels of retirement income. You simply multiply the annual income you would like in retirement by 17 if you want to exit the workforce at age 55, multiply it by 15 if you want to retire at age 60, and multiply it by 13 if your proposed retirement is at age 65”.
Frequently Asked Questions about this Article…
The Australian government is considering raising the retirement age to 70 as a response to the fact that people are living longer on average. This change aims to ensure that individuals have enough money to last throughout their extended lifespans.
The controversy stems from the government's proposal being seen as a broken promise, with opposition parties like Labor not supporting the change. Critics argue that the Prime Minister lacks a mandate to make such changes to pensions in the current budget.
According to the Association of Superannuation Funds of Australia (ASFA), a couple aiming for a 'comfortable' retirement needs to spend approximately $57,817 annually, while a 'modest' retirement lifestyle requires about $33,509 per year.
Financial planner Paul Clitheroe suggests a simple formula: multiply your desired annual retirement income by 17 if retiring at age 55, by 15 if retiring at age 60, and by 13 if retiring at age 65. This gives an approximate level of accumulated funds needed.
To build a retirement fund, consider investing in superannuation, shares, managed funds, and investment properties. These assets can help generate the income needed for retirement.
The ASFA Retirement Standard is a guideline that outlines the typical costs retirees need to meet. It provides benchmarks for 'comfortable' and 'modest' retirement lifestyles, helping individuals plan their retirement savings.
Living longer impacts retirement planning by increasing the amount of money needed to sustain a comfortable lifestyle over a longer period. This may require working longer or saving more during one's working years.
If the retirement age is raised to 70, current workers may need to adjust their retirement plans, potentially working longer to ensure they have sufficient funds to support themselves throughout retirement.
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