While there are plenty of retirement income guides out there , this won’t necessarily match up with your own dream retirement lifestyle. Work out your own income requirements so you can enter retirement worry-free.
We know that the pension is unlikely to be enough to fund your retirement (you can read more about why here). And while there are plenty of guides out there advising how much income you’ll need, this won’t necessarily match up with your own dream retirement lifestyle. It’s also important to note that most income estimates used by government and super funds are based on two assumptions: that you own your own home, and that you’re retiring at the average age of 65.
To be as accurate as possible in your planning, it’s necessary to work out your own income requirements based on your individual lifestyle expenses. In general, this will be two-thirds of your current income, assuming you’ve paid off your mortgage and all debt.
Why should I pay off my home before I retire?
Ideally, your principal place of residence (PPOR) will be paid off before you retire (if you don’t know why, read article 3). You probably don’t want to be dipping into savings, super or other investments like shares to pay off your mortgage – instead, you might want to use these to fund your retirement income.
There’s also the mental health toll of going into retirement with existing debt. A report by the Australian Housing and Urban Research Institute (a national independent research network) found that when older mortgagors had trouble paying off their debt, their wellbeing suffers. And it turns out quite a lot of us are worrying about the issue already; according to the ABC's Australia Talks National Survey 2021, 6 out of 10 of us consider being able to retire comfortably a personal problem.
I’m sure you want to enter retirement worry-free (who doesn’t?!) so let’s take the first step and work out your retirement income.
How to calculate your own retirement income
To make sure you’re getting a realistic figure, it’s important to include everything you spend money on, on a weekly, fortnightly and monthly basis. This will be expenses from bills, insurance and groceries to clothing, health and leisure.
You also need to factor in larger or one-off costs – will you want to purchase a caravan? Take some domestic or international holidays? Include it all!
The below link from AMP – a retail wealth management and banking business – will help you calculate your required retirement income and prompt you to think of your circumstances in detail:
While this calculator from Moneysmart will help you compare your desired income with your super, pension and other streams of income:
Once you have a number, it’s time to look at what that equates to in assets. Check out our guide to calculating this here.
While there are plenty of guides out there advising how much income you’ll need, this won’t necessarily match up with your own dream retirement lifestyle. It may be prudent to work out your own income requirements, and understand what this equates to in assets, so you can enter retirement worry-free.
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