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Is your spending plan aligned with your retirement plan?

Updated: Jan 30, 2023

Thinking about how much money you need to retire can be daunting as many factors can affect this number. Your health, how long you plan to work, where you plan to live, and whether or not you own your home are just some factors that can impact this number.

I don’t mean to startle you (well, I do, but only a little), but did you know that in Australia, we have an estimated retirement shortfall of $2 trillion? That means that each of us will be, on average, short by $187,200 when we retire (or $70,100 if we are eligible for the full-age pension).[1] The research also found that women tend to rely more on the government pension than men.

What does this mean? Unless you take matters into your own hands, you may be in for a rude shock when you reach your golden years. The further away you are from retirement, the bigger the shock will likely be if we consider the risk of a reduced or eliminated age pension at retirement (brought on by an ageing population and pressure on the tax system).

The current full-age pension[2] for a single person is just short of $500 a week, plus an additional $70 a week if you don’t own your home and are eligible for rent assistance. The question becomes, how easily can you live off these amounts if you retire tomorrow?

Chances are these numbers would mean a significant lifestyle adjustment, which is why we have put together 5 simple ways you can protect yourself and reduce lifestyle shock in retirement.

Understanding how you spend

Start by getting to know your spending habits and where your money goes right now. How much are you in the habit of spending on discretionary items compared to the bare essentials? Consider things like clothes, gifts, clothing, holidays, and eating out. Do you habitually spend a little extra when feeling anxious, stressed or depressed? Taking the time to reflect on these details can help you to better prepare for the future.

Buying a home

One of the most effective strategies to give you peace of mind in retirement and maximise your cash flow, is to own your home by the time you retire. If you manage to pay your mortgage off before then, you will be in an even stronger position as you can redirect some extra cash towards your retirement savings. Another benefit to owning your home is that you can use it as security if you wish to borrow money to invest and boost your saving efforts (just make sure you get professional advice on this first!).

Investing Outside Super

If you prefer to rent rather than own your home, you can still achieve security in retirement by investing in property and other asset classes outside of super. This way, when you are ready to settle down, you have the resources at hand to help you purchase something suitable or to use as an income stream to cover the rent payments. Just make sure that you do your research and are well informed of the risks of any investments you make.

Contributing more to your super

For most people, super is the most tax-effective way to grow your savings for retirement. This is because super is taxed at 15%, which is typically a lower rate than the marginal tax rate you pay on your take-home pay or investments held in your name. And the less tax you pay on your earnings, the more money is going towards future you! Before you dial up your super contributions, ensure you are happy with locking that money away until you reach retirement age. Remember to check the maximum amount you can contribute so that you don’t incur any penalties for exceeding the limit.

Having an emergency back up plan

Life is full of surprises, some less pleasant than others. This is why it is essential to factor in bumps in the road when you plan for your retirement. Your health and ability to earn an income is arguably your biggest asset, but also your biggest risk factor. By having some emergency savings up your sleeve, you can ensure that you can still achieve your retirement dreams, regardless of what surprises life throws your way. Having adequate health insurance, trauma, disability and income protection cover can also give you added peace of mind and support to make sure you can stay financially afloat and save for tomorrow, even if you can’t work for an extended period.

As daunting as it is to think about retirement, early planning can be the difference between having an enjoyable retirement and finding yourself facing lifestyle shock as your income is not at the level you are used to.

We understand that further away your retirement is, the less likely you are to know what you want retirement to look like and how much you might need. Even so, it doesn’t mean you shouldn’t start planning today. Keep in mind that plans can easily be adjusted as you go, and having some sort of plan is better than no plan at all. If you would like to chat about how you are tracking and how we can support you with your retirement goals, just call 02 4023 4447 or click here to book an obligation-free chat.

What you need to know

This information is provided and produced by Lush Wealth. The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation, or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product. Information in this document is based on current regulatory requirements and laws, as of 1 July 2022, which may be subject to change.


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