Ask the Expert: A comfortable retirement? There’s a more important question to ask first

The most important question is really: 'What do I want to do and spend in retirement?’

The most important question is really: 'What do I want to do and spend in retirement?’

Question 1

  • I have a super balance of around $900k at age 60, and have been trying to work out if that will lead to a ‘comfortable’ retirement (whatever that means). Everyone I talk to seems to have a different idea and it all ends up with “well, that depends”.  I get that my lifestyle choices once retired will impact my super. Do you have any thoughts on what my wife and I should between now and when I am 67 to maximise our savings? Many thanks, Rob

Hi Rob,

I like your comment, ‘a comfortable retirement, whatever that means’.

What tends to happen is people ask the question the wrong way around.

Instead of asking ‘How much money do I need to live a comfortable retirement?’ how about you first ask, ‘What do I want to do and spend in retirement?’.

Then we can work out how much money you need.

Even when approaching it from this angle some people still find it hard to make a start.

So, to help you, let’s look at what ASFA includes in its retirement standard. It breaks down the weekly cost of what it describes as a ‘modest’ and ‘comfortable’ income in retirement may look like, both for couples and singles.

You can compare your expenses to those in the below table as a guide and then make adjustments. These figures assume you own your own home. Also remember that inflation will make the below figures go up each year.

Given your current level of super savings you are well on track, even ahead of the track, to meet the ASFA definition of comfortable but your own definition may be different.

Ensuring you maximise your super contributions leading up to retirement and being invested appropriately will also help you maximise your savings.

This will then allow you to enjoy a higher standard of living in retirement, and/or retire earlier than 67 should you wish.

Table 1: ASFA’s Retirement Standards for retirees June 2023

(Calculations on ‘modest’ and ’comfortable’ retirement expenditure levels)

Numbers are weekly, except where otherwise specified. Totals may not exactly equal the sum of components due to rounding of price adjustments

Question 2

  • My daughter is 19, works part time and goes to uni full time. She is wondering, when she has a little extra cash, is it more advisable to put that money into super, or pay off her HECS/HELP debt?

Given that she will not be able to access her super until age 60 at the earliest, I would not be looking at making additional contributions to super.

Employer SG contributions rate has now moved to 11 per cent of wages and will move to 12 per cent from July 1, 2025.

If your daughter has a regular employment pattern throughout her working life her super will already have a good base on which to grow. She could look to make additional contributions later in life once some of her other financial goals are met.

Your questions implies that your daughter will, at some point, have extra cash. This is actually the most important aspect of meeting any financial goal. Being able to save money, this cannot be stressed highly enough.

The question is then whether to pay down her HECS/HELP or save towards another goal.

HECS/HELP loans were indexed by a whopping 7.1 per cent last year as it is linked to CPI.

Hopefully Australia can get the inflation rate under control where the indexation rate will come down to what is considered more normal levels. I note between 2015 and 2021 the annual indexation rate for HECS/HELP was between 0.6 per cent and 2.1 per cent.

Speaking with a number of younger people with HECS/HELP debt, psychologically seeing it grow each year can be stressful. So, while it’s not always the best financial strategy to pay down HECS/HELP debt, psychologically it can alleviate some stress.

One strategy to consider is to make some repayments so the debt doesn’t grow and then look at directing any further surplus funds towards other investments or savings goals.

It will then come down to what those goals are for your daughter.

Question 3

  • What is the maximum amount of part-time income I can earn that will not affect my pension?

You can receive $150 per fortnight in any type of income without it having any effect on your age pension.

In addition to the above there is something called a work bonus where the government encourages older workers to stay in the workforce.

Under the Work Bonus, the first $300 of employment income (and self-employment income) is excluded from the pension income test each fortnight.

In effect, this means you can receive $450 per fortnight, so long as at least $300 is from employment, and your age pension remains unaffected.

The above is a simplified explanation.

In reality, to account for ad-hoc or seasonal work, if you earn less than $300 per fortnight in employment income (including nil) your work bonus can accrue to be used in future fortnights.

Centrelink does this automatically, as long as you keep them updated with your situation. Further details can be found here.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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