Yawning into retirement

Who better than Warren Buffett, a happy investor now in his twilight years, to unveil our new retirement calculator?

A younger but nonetheless wiser Buffett once remarked, “Beware the investment activity that produces applause, the great moves are usually greeted by yawns”.

Retirement is a subject that often makes people yawn, even, or especially, when they’re approaching their golden years. It’s boring when you’re younger, and it’s tiring when you’re older.

Here’s a thought. Instead of holding back the yawns, let them all out. Whether you’re 25 or 55 years old. Yawning your way into retirement, and beyond, probably means you’re doing something right.

If you want to make like Buffett – even if that just means at a ripe old age you have a ripened portfolio to match – best not to make too many crazy moves.

Be cool, calm, collected – and above all – calculated.

The cool thing about saving for a happy retirement with InvestSMART is, to start with, it comes at no cost.  

Plug in your risk profile, spending, earnings and timeframe, and the InvestSMART retirement calculator programs the rest. While InvestSMART provides a model, not a prediction, the calculator is designed to ultimately help you rest a little easier (even if the result initially makes you sweat a little more).

Retiring is easy, when you have the right tools to guide you.

As we already know, failing to plan is planning to fail. Buffett doesn’t need to remind us of that.

However, what you probably don’t know, and Buffett definitely doesn’t know, is that InvestSMART just made planning your retirement a whole lot easier.

Unlike other retirement calculators that show one plus one equals two, or claim how much you will need without context, InvestSMART goes one further and lights up several pathways to your retirement goal. These paths are smooth, requiring little capital outlay. You certainly don’t need to invest in Berkshire Class A shares now (or, more realistically, last century) to reach a happy retirement.

Before getting started with the calculations, we assume you are not in retirement at the time and won’t be eligible for the Age Pension under the assets test and income test. If you are in retirement already, switch from InvestSMART to MoneySmart, a website by the Australian Securities and Investment Commission (ASIC) that provides a more suitable retirement calculator for you. 

In addition to your investments, risk profile and time horizon, there are other variables such as inflation, yearly spend in retirement, years of retirement, monthly salary sacrifice and super contributions which you can play with too. But the calculator has been preset so you won’t always need to. 

These variables are preloaded with estimates, so unless you have a clear understanding that your situation is different, it’s probably best to leave what’s not yours in the calculator as is.

For example, inflation is adjusted at 2.7 per cent, as per the Consumer Price Index (CPI) plus Australian Prudential Regulation Authority (APRA) cost of living estimates. If you think this might sound a little high, consider that you’re more likely to clink to the finer things in life in your twilight years.

Of course, comfort in retirement is a matter of personal preference. Some may have champagne taste, where others enjoy the happy hour special.

As at 2019, the Association of Superannuation Funds of Australia (ASFA) claims a couple aged 65 needs $60,264 per year for a ‘comfortable’ retirement. By the time that same couple hits 85, ASFA claims that amount drops to $56,295 per year.

That’s why InvestSMART thinks $60,000 should at least be a solid ballpark, perhaps even a strong benchmark figure, that you can plan your retirement around.But a "happy retirement" is different for everyone and like many financial experts we believe you should aim to have between 70 to 80% of your wage today to spend each yera in retirement. Don't worry we know your wage will increase over time and our calculator takes that into account.

When you’re ready to carry on, InvestSMART gives detail around disclaimers and lists model assumptions, as well as provides a cashflow statement, on the calculator page. Several factors will impact retirement income. When it comes to retirement, longevity risk is now part of the lexicon. What about legislative risk? If the recent past is any indication, there will be future changes to superannuation rules.

Although, above all, it’s best to focus on what you can control. Not from Buffett, simply a leaf out of the classic investing book – control the controllable.

After you collect your thoughts, InvestSMART has taken the liberty to lay out specific investment plans that will get you on your way to happy retirement days. As stated earlier, some of these investment plans will require little capital outlay. To better make a calculated investment, you can also see how each of these investment plans stack up against peer funds. Rarely will individual stock selection outperform broad asset allocation.

We all like to think we can beat the market, and yet we all know that we aren’t no Buffett. Do the math, and trust the retirement calculator will keep you on track. Stick to the long-term investment plan. Remember, if it makes you yawn, it’s probably a good thing.

Click here to access the InvestSMART retirement calculator.