Have I got enough money to retire?
For some, the fear of outliving your money is an entirely legitimate one. A survey recently conducted by MLC suggests that 66% of Australians feel unprepared for retirement, with only 15% feeling well or fairly well prepared. Surveys like this may prove to be prophetic, with some of the 66% running a real risk of outliving their money, but for others these surveys amount purely to fear tactics. It’s just like those ‘don’t do bad things’ campaigns we all got as school children. The only ones who were really put off from being ‘bad’ were those who were unlikely to be bad in the first place. For the most part, these surveys are only scaring people who don’t really need to be all that afraid.
Of course that understanding doesn’t stop us from being afraid. So, for those of us who haven’t quite reached the level of financial preparedness we’d like, how do we make the 80 or even 90% we discussed in Part 1 of this series, work for you?
We’re not saying you have to take up a part time job in order to put aside a great amount of savings into an investment account each month, but you do need to keep investing. For some, particularly those retired, this can be as simple as staying invested. With very few exceptions, there is no point in time where you should think to yourself “I’m done” and pull all of your money out of a super or investment account and let it sit in your bank. Similarly, if you’ve accumulated savings, it makes sense to get your money working for you. Interest on bank accounts barely keeps pace with the rising cost of living, so in real terms your money can go backwards.
Instead, consider changing the risk level on your investment accounts or switch the type of investment product you’re using. This way, your money can keep working and growing for you, reducing your risk of running out of it.
We have seen many clients who, after quite some time of working with a relatively stable income, have become accustomed to a certain lifestyle. Sometimes, they can’t imagine how they might survive if they had to live off less. The thing, however is that we adjust. Humans as a whole are highly adaptable and after the initial shock, we quickly learn how to change and live within our means.
If you’ve achieved 80 to 90% of your financial goals, not much about your lifestyle and budget will have to change – you’ll likely still have your house, the same car(s) and the same friends. You may no longer be able to eat at a nice restaurant 3 times a week, but you may discover that you love the café down the street!
Not having as much money to spend doesn’t generally make us any less happy or content with our lives and there is no reason why you should be the exception.
Breathe & Budget
Some seem to have a rude awakening during the first years of retirement and begin to panic. In those first few years it is easy to spend just as much money as you were during working life. This is because many of us take very well to the new freedom and go on all those holidays that were always being put off until later or invest in new hobbies. Once we sit down and account for all this spending, we start to panic.
How could we have spent so much? Will we be able to keep spending like this?
That panic, though understandable, isn’t necessary. What we spend in the first few years of retirement is rarely something that we sustain – and not because we begin running out of money, but because as a whole we’re not as inclined to wander around the world as we get older. In fact, a U.S. government study has shown that our spending typically reduces by half by the time we reach 75. We too have seen that Age Pension income alone can be more than enough for some older retirees.
The important thing is to keep a budget, know what you’re spending money on, and not go too overboard. That $700 per night hotel room in Tokyo is probably not worth it.
We’ll talk more about this in Part 3 of our series, but remember, just because you’re retired doesn’t mean you have to stop working entirely. Retirement is a time for passion projects and starting a business in Australia is surprisingly easy. Why not take advantage of the free time and build that business you’ve always had churning away in the back of your mind? You might just find your true calling and make some money on the side!
The fear of running out of money in retirement is overblown for most of us. Staying financially afloat doesn’t have to be a struggle – it just takes some smarts and restraint. Do remember, however that there is no “one size fits all solution” to retiring well and it is important to work with your adviser to make sure your finances work for you.
And fun fact – Australia is ranked the 5th best country in the world to retire in and 1st in the world when it comes to retirement finances! So, even just by being here, you’re doing pretty well.