How Can You Work Out if Your Investments will Provide For You Sufficiently in Retirement?

Posted on May 15th, 2013 · Posted in News

There have been many surveys conducted into what people worry about. Near the top of everyone’s list is whether their investments will provide sufficient income in retirement, and how long they will last.  This level of concern is more prevalent for baby boomers and Generation X  who need to consider the increased affluence of these generations, the lack of thought and planning they have done for retirement and the impact of the global financial crisis, which resulted in their retirement investments being severely reduced.

To work out how much you need in investments for retirement, including super, first calculate how much income you will need.  One rough method of calculating this is 75% of your income. This method, although not very accurate, does have some relevance, because superannuation pensions received are tax-free once you reach 60.  Alternatively a more accurate method of estimating how much income you need is based on how much you spend now. This requires an expenditure budget, producing a snapshot of where your income is spent to support your current lifestyle.  Remember to think of discretionary expenses including alcohol, dining out, entertainment, holidays, sports and what is spent on birthdays and special occasions.

Once you have worked out your current expenses, you can assess what will continue in retirement. Some current living costs may not be needed including education costs, employment-related costs, and home loan repayments.  However, there are extra costs that may apply, such as increased travel and health costs.  By then projecting your current living costs to your preferred retirement date & allowing for inflation, you can reasonably estimate the income needed.

It’s never too early to start planning for your retirement.  The sooner you establish how much income you want or need in retirement, what your retirement savings are now and when you want to retire, the better chance you will have of putting in place a plan to achieve your desired retirement goals. Contact us today so we can help you strengthen your financial future and complete a FREE finance review.