Putting your head in the sand? 5 Steps to secure your retirement

Most Australians retire between the ages of 60 to 64. Figures show that the average Australian man has only $270,710 saved in his super at the time of retirement, and the average Australian woman has only $157,050*. If you have never sat down and worked out how much you would need to sustain you in retirement, even at a modest level, it would be sustantially more.

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Some research suggests that you should plan for 80% of your pre-retirement earnings to live on through your retirement years, so if you earn $80,000 per year in the last years before stopping work, you will need $64,000 per year. 

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Imagine for a moment that you own a house, which you have paid off in full, by the time you retire at age 65; later than the average retirement age. You have $300,000 in your super, which is more than the average person.  You earned $80,000 p.a. before retirement but plan on living on a more modest $50,000 a year. Assuming you only live until age 85 - although many people live a lot longer - this means you will need $1million to fund you for the rest of your life. Note that this figure assumes that you have paid off your mortgage in full.

 

With your $300,000 saved, this will either last you only 6 years at $50,000 per year, or if you split this evenly across 20 years you will have only $15,000 a year until age 85.

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A reasonable person in this situation would likely sell their house to ensure they have sufficient money to live off. And in some cases, this is enough. But do you want to be forced to sell your home and start renting when you are retired? This is not the vision that most of us have for our future.

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For people who are not home owners, the outlook for retirement is even less rosy. If you have been paying rent for your whole adult life, this is money that has not been invested in your own future but rather someone else's. Once you reach retirement age, without the safety net of having paid for your own home you will need enough money stashed away to keep renting for the rest of your days.

 

Statistics show that on average, households with at least one person over 65 who rent have an average net worth of only $40,000 compared to that of homeowners, who average $960,000**. 

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The number of Australian households renting their home increased to 32 per cent in 2017–18, and is on an upward trend. Likewise, the proportion of households owning their own home has fallen to 66% in the same period.** Modelling by the Grattan Institute shows that 76% of retirees owned their own home in April 2019, and this is set to fall to 70% by 2036.

 

With less people having the fallback option of selling their home in retirement, what does this mean?

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With declining rates of homeownership, comes more finanical stress on retirees who will need to rent at rising rental costs. Average rents soared by 64% between 2003 and 2017, so how high will they be by the time you retire?

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How do you correct the course that you are on, and ensure you are not affected by poverty when you are elderly?

 

Going back to the example of the person with $300,000 to retire on when they really needed $1million. It wouldn't be possible for this person, on $80,000 a year to save the additional $700,000 required. But, if that person did something proactive to increase that figure, even as late as 5-10 years before they retired, they may have been okay.The only way to make such significant gains is to make your money work for you via smart investments. 

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Although investments are not without risk, the property market has shown consistent growth; increasing in value in Sydney by 79.3% from 2008 to 2018***. During the GFC, values only fell by 7%; soon recovering and having little impact on long-term property growth. Property investments still remain the preferred method for many Australians.

 

In the current economic climate, we are seeing a reduction in activity in the property market. This combined with lower rates means that now is the best opportunity we have seen in over 10 years to get into the property market at the lowest cost, and with high opportunity for growth. 

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Renters may be prohibited from buying their first home because of the large deposit required; another option is to perhaps look at a small investment property to get on the ladder, and grow from there whilst continuing to rent. Homeowners may be able purchase a second property and rent it out, and with low monthly costs can increase their net worth. With a second property paid off at retirement, there are many more options and a higher likelihood of living comfortably with no shortfalls.

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At Assert Wealth, we understand everyone's situations and needs are different. We work with experts who can advise you on how to reach your goals, and help you get there. 

 

We charge no fees to our clients, so if you would like to know more or have a chat, give us a call on 1300 059 669 or send an enquiry.

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Sources:

*The Association if Superannuation Funds Australia (ASFA) report Superannuation account balances by age and gender Oct 2017

** The Australian Bureau of Statistics

*** Corelogic

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Note: The above information does not constitute financial advice. You should make your own inquiries to your satisfaction and consult a Solicitor, Accountant or Financial Adviser for advice or guidance as required