Retirement plans are changing, shaped by evolving family dynamics and challenging economic conditions across all generations. Understanding how much you can spend in retirement can make all the difference to how you feel about this next stage in life. In this article, we’ll look at what’s changing and why, plus how you can make informed decisions about what you can (and can’t) afford to spend your retirement savings on.
Paying off the house might take longer than planned
Owning your home is one of the cornerstones of the retirement dream, but it’s no longer a sure thing. A recent AMP survey of 1000 Australians aged 50 years and older indicated only one in seven people believed they would be mortgage-free when they retired, and one in nine expected to have more than $250,000 in unpaid debt.1
Many retirees are facing the prospect of carrying debt into retirement, which might mean working for longer or downsizing their home. Larger mortgage repayments can also mean less money available to boost retirement savings while you’re working and potentially less retirement income than you might have planned.
The bank of mum and dad... and nan and pop
Rising house prices aren’t just impacting those paying the mortgage—they're hitting the next generation's dreams of home ownership. Saving for a healthy home deposit takes longer than it once did, meaning Australian parents are waiting longer to be empty nesters: just over half of young men (54%) and 47% of young women aged 18 to 29 years old are still living at home.2 Older parents aren’t just supporting their adult children financially with free (or cheap) board, they’re often contributing to university fees, home deposits and other living costs.
Once the kids do finally move out and start their own families, grandparent duties are looking different, too. According to research from McCrindle, grandparents are now more likely to help their families by covering or contributing to the grandkids’ school fees, extracurricular activities and other expenses than ever before.3
Active retirement
The good news is that we’re all living longer and planning to stay active as long as we can. Living longer means that not only are we also retired longer, but our budget needs to keep pace with a longer ‘active phase’. This early phase is when your lifestyle expands to take in more leisure, travel and family time, while working less (or not at all). You’re self-sufficient and can manage the ins and outs of daily life, you might be dreaming of a major holiday (or three), and investing in activities that you didn’t have time for when working – which can mean your retirement income needs to keep pace with your active lifestyle.
On the flip side, living for longer can also mean additional and potentially unexpected health care costs in the late phase of retirement. Aged care often comes into the picture, and people need more help, regardless of their living situation.
What you can do to plan for any (or all) of these new expenses
- Don’t panic—but do start planning early. Understanding that your super savings are still working for you during retirement can help alleviate anxiety about the future. You might also have other investments or sources of income you can take into consideration, as well as the Age Pension. Getting a complete view of your income and expenses can help you feel confident you’ll have enough money in retirement. The earlier you start planning, the better off you’ll be. However, it’s important to start mapping out your retirement budget – a simple rule of thumb we use at Aware Super is to have a target replacement rate of around 70% of your pre-retirement income (after tax and super contributions), an approach recommended by the OECD, the Melbourne Mercer Global Pension Index, and the Grattan Institute.
- Model your income. We’re putting the ability to model different retirement outcomes in your hands. My Retirement PlannerTM estimates how much money you’ll need in retirement and how much income you are likely to receive in the future. This retirement income projection takes into account the ups and downs of the market to give you a realistic picture of how the future might unfold. You can see how your projected income might change based on when you decide to retire and whether you make additional contributions to your super. If you need help deciding what to do with your SASS benefit, an Aware Super financial planner4 can review your personal circumstances, talk you through each option and ultimately help you make a more informed decision.
- Have the conversation. You may be planning to help your family financially, but have you spoken to them about it? Do they have their eye on private schools for the grandchildren under the assumption that you’ll help with fees? It’s important to discuss your plans and their expectations so that everyone’s on the same page.
