The Ultimate Guide to Understanding the Cost of Living in Retirement

Understanding your retirement income needs

When it comes to retirement, it’s crucial to have a clear picture of what you want your lifestyle to look like. Start by asking yourself: What are your retirement lifestyle expectations? Think about your current lifestyle and expenses—these are good indicators of what you’ll need in retirement.

Do you dream of travelling or picking up new hobbies? Maybe you want a comfortable lifestyle, filled with short breaks and day trips, or perhaps you want to enjoy a more modest retirement, spending time doing what you love. Whatever your retirement goals are, they’ll play a big role in determining your financial needs.It’s also a good idea to check out the Association of Superannuation Funds (ASFA) Retirement Standard which estimates how much money you’ll need to retire at different living standards. The figures provided by the association of superannuation funds are based on the expectation that a retiree no longer has mortgage payments, lives in their own home and is debt-free.

A realistic approach

There are two key steps to understanding the cost of living in retirement. First, you’ll need to get your finances in check to understand your annual budget based on your lifestyle in retirement.

Next, you need to know the estimated annual rise in living costs. As an average, Australia’s cost of living has risen an average of 2.75% per year over the last decade. This increase needs to be factored into your annual budgets. Make sure to keep an eye on yearly inflation throughout your retirement years to ensure you continue to lead your desired lifestyle without any shortfalls.

How long will you work?

Deciding when to retire is a key piece of the puzzle. Your retirement age will directly impact your income. Consider your health too—it may affect how long you can or want to work. It’s worth looking into the government-age pension and understanding how it might affect your retirement fund. The sooner you know, the better prepared you’ll be.

How long will your retirement be?

Estimating how long you’ll be retired can feel a bit daunting, but it’s important. Your life expectancy will determine how long your savings need to last. A good place to start is with your family history as it can give you some clues about your longevity. It’s no secret that as we age we may require increased medical assistance, to mitigate the costs make sure to take our private health insurance policies to protect your retirement savings from unexpected bills.

Calculating your retirement fund

When it comes to planning your retirement, it all depends on how much income you’ll receive monthly or annually. Look into the different types of income streams available, if you have spent your working life in Australia, your employer will have been making compulsory contributions to your Superannuation savings at a minimum rate of 11.5% of your annual salary.

Depending on your estimated monthly income you may be eligible to receive income support via Age Pension payments. Your eligibility is determined by an income test.

Don’t forget other sources of income, like investments or inheritance. These can diversify your income streams, helping you achieve a more comfortable retirement.

Taxation in Retirement

Unfortunately, taxes don’t stop when you retire. Understanding the tax implications of your income streams, like superannuation and the age pension, is vital. Minimising taxable income in retirement can help stretch your savings further. Look into the tax requirements of superannuation withdrawals and learn how to optimise your superannuation tax strategy. If you need assistance understanding your expected tax requirements speak to a professional.

For Australians aged 60 or above, you are not liable to pay tax on your monthly income. If you are accessing your super fund before you turn 60 you will be paying taxes, every year until you turn 60.

Managing Your Retirement Finances

Creating a retirement budget is essential. Start with the basics—essential expenses like housing and food. Then, think about how much you’ll need for discretionary spending on things like travel and hobbies. For those wanting to lead a comfortable lifestyle, a retirement village such as St Ives can be a great option. Retirement villages place state-of-the-art amenities and connected communities at your fingertips, allowing you to trade household chores and a new and exciting lifestyle.

If you’re considering investing in retirement, explore your options. Shares, property, and other investments come with their risks and rewards. Diversifying your investments can help ensure you have a stable and comfortable retirement, rather than relying solely on one investment portfolio.

Government Assistance and Benefits

As you transition into retirement, it’s worth exploring the government assistance and benefits available. The Commonwealth Seniors Health Care Card, for instance, can offer significant discounts on healthcare. Make sure you’re aware of the eligibility criteria and the benefits associated with it. Similarly, the Seniors Card provides discounts on a range of goods and services. Knowing how to apply for these cards and maximise your benefits is crucial for a comfortable retirement.

Working in Retirement

Many self-funded retirees wonder if they can still work. The answer is yes, but it’s important to understand the rules and regulations, as well as how additional income might affect your retirement fund. If you’re considering working in retirement check out our recent blog article to understand your taxable income implications.

Retirement Planning and Advice

If there is room in your budget, make additional contributions to your super fund to help reach your financial goals. While it’s possible to manage your super without a financial adviser, getting the right advice can make a big difference. Professional advice can help optimise your retirement planning strategy and ensure you’re on the right track.

If you’d like to learn more about St Ives, and if the lifestyle aligns with your goals, request an information booklet, or speak to a friendly member of our team.

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