How to nail your retirement
YOU need $1 million in retirement, say most financial planners, or even $2 million. Stop! If you’re aged in your 50s these retirement figures will likely scare the life out of you.
After all, the average Aussie couple retires with $200,000 in super. Let me be clear: you do not need a million dollars in super to retire.
At a minimum, you need a paid-off home, plus: couples, $250,000 in super; and singles, $170,000 in super.
Make this your “retirement number”. To be clear, this is the number you need to nail before you even think about retiring — and that’s in addition to owning your own home outright.
Hang on, what if you don’t have $250,000 before you retire? You keep working.
Hang on, what if you have more than $250,000 saved up in super?
You keep smiling.
HERE’S YOU, HERE’S ME
Here’s you: I think old Barefoot needs a pedicure! I mean, really, what sort of retirement will $250,000 get us? We don’t want to dine out on dog food!
Here’s me: If you follow my strategy to the letter, you’re going to have a very comfortable retirement.
Here’s you (crossing your arms): Your idea of retirement might be a little different to ours, young man.
Here’s me: OK, well let me paint you a picture of what a paid-off home and $250,000 (or $170,000 for singles) buys you in terms of lifestyle in retirement.
WHAT IT LOOKS LIKE
• You enjoy a three-week trip to Noosa each year with your friends, staying in a nice hotel. • You regularly eat out at nice restaurants, and you choose whatever you want on the menu. • You enjoy a nice glass of wine (or two) as the sun sets each night. • You own a near-new Toyota Corolla. • You regularly buy nice new clothes. • You continue going to the same hairdresser you always went to while you were working. • You keep track of the footy scores on your iPad … and download the occasional dirty movie. • You enjoy fishing with the latest gear. Your wife goes to pilates once a week, and you both go to art class and learn how to draw nudes. • You buy your grandkids nice presents, without spoiling them. More importantly, you buy an annual zoo pass and take them out on day trips. Lots of snaps on the iPhone for the weekly battle of “my grandkids are cuter than yours” at the golf club. • You’ve got enough dough to replace your drab kitchen and bathroom when you retire. • You’ve got top-quality private health insurance so you can have your choice of doctor and hospital. • You’ve got emergency money socked away so you don’t have to worry about dayto-day bills — and you know your long-term income will never run out.
Again, just to be clear, that’s what you can look forward to if you retire with a paid-off home and $250,000 (or $170,000 for singles), if you follow my Donald Bradman Retirement Strategy. Sound good? Well, you’ll be pleased to know I haven’t plucked any of this out of thin air. What I’ve just described (minus the dirty movies) is what the stodgy Association of Superannuation Funds of Australia (ASFA) has calculated as being achievable for retirees living a “comfortable retirement”.
So how much dough does ASFA calculate that this comfortable retirement will cost? $59,971 a year for couples, and $43,665 a year for singles. At this point you’re thinking: “Does this plan of yours involve me holding up convenience stores with cricket bats? Because I can’t see how my $250,000 will afford me a $59,971-per-year lifestyle.” Let’s head to the crease. Rule 1: You must have the banker off your back
This strategy only works if you retire debt free ... as in no mortgage.
Even better, the age pension doesn’t take into account the value of your family home. (Which means that, theoretically, James Packer could cash in his chips when he’s older, buy a $7 billion home and collect the age pension.)
You need to own your own home — debt free — before you retire. Rule 2: Nail your number You can’t retire until you’ve nailed your retirement number as a minimum (more money is better): $250,000 in super for couples and $170,000 for singles.
Hang on, what’s so special about these numbers?
This is the maximum dollar amount of assets (excluding your family home) that you can have and still get close to the maximum rate of age pension.
At the time of writing, the maximum rate of age pension is $34,819.20 per year for couples and $23,095.80 for singles. And it will get you 60 per cent of the way towards your comfortable retirement number on its own.
Think of this as your safety net: it’s guaranteed by the Government, it’s indexed twice a year to keep up with inflation and it will be paid until the day you die. Rule 3: Never, ever retire It’s said that the two most dangerous years of your life are the year you’re born and the year you retire.
Well, it looks like you made it through the first one, so let’s talk about the second.
The golden rule of retirement is ... keep working.
That doesn’t mean you have to keep your existing job (especially if you’re a tiler with dodgy knees).
You can do something less labour intensive — just a day or so a week, and it doesn’t need to be every week.
Why not use the skills you’ve honed over your career to do some useful work? I meet so many Uber drivers who are well-to-do retirees who don’t need the money — they just like chatting to people and earning their keep at the same time.
And better yet, if you do work, the Government will bend over backwards to help you.
Once you reach pension age, you’ll not only be able to draw a tax-free pension from your super, but in addition a couple can earn up to $28,974 each without paying a cent of income tax (singles can earn $32,279 per year).
Yet what if your adviser says: “You’re a winner, you don’t have to work another day in your life.”
Barefoot says, “Work anyway, even if it’s a day a week.”
NEVER RUN OUT
Let’s take a final look at the retirement scoreboard, after you’ve applied all three rules: 1. You’ve paid off your home. 2. You’re getting the age pension of $34,819.20.40 (per couple) a year, indexed for life. And you’ve got $250,000 in super. (After you turn 65, you’re legally required to draw down a minimum 5 per cent of your account balance — or in this case $12,500 of tax-free income per year. As you get older, the minimum you’re required to drawn down gradually increases.) 3. You and your partner each work just one day a fortnight (and not every fortnight, you’ll be in Noosa, remember) to bring in a combined $13,000 a year, completely tax free.
Better yet, a couple can earn $6500 ($13,000 combined) a year via the Centrelink “work bonus” without it reducing their age pension; this is on top of the $7592 a couple can earn each year via the income test.