Your lifestyle in retirement – how much can you afford to spend

Written on the 9 November 2021 by Parkside InvestorPlus

This is one of those questions where the response “it depends” is very appropriate.

When I say to my clients ‘it depends’, I always refer to how much you have in your superannuation when it comes to retiring.

When it comes to retirement, everyone’s needs, and expectations are different.

Firstly, in theory, you should not have the living expenses that you had pre-retirement – for example, school fees, dependent children, health care for the entire family, having multiple cars and so on.

Having said this, there is a growing number of retirees entering their retirement phase with mortgage debt which can and will reduce the funds available in your retirement.

In addition to mortgage debt, there is an increasing number of retirees who are helping with their grandchildren’s private school fees and supporting their children with home deposits.

So, while in theory, living expenses should reduce, the reality in many cases is that they may still be close to the same levels as pre-retirement.

Going back to the question of how much can you afford to spend in retirement comes down to 4 main factors:

1.       Investment market performance

2.       Your super balance at retirement

3.       Your lifestyle goals

4.       Ongoing financial commitments (mortgage, helping your children etc)

Figuring out how much you can spend in retirement

First and foremost, well before you even enter the retirement phase, you need to figure out how much you will need to spend each year – not only to support your retirement lifestyle, but also any other commitments you may take into your retirement.

Your retirement phase typically follows 3 stages:

Stage 1

Enjoy & Spend

This may include:

·       Helping with your children’s mortgage

·       Home renovation/extensions

·       Holidays (local and overseas)

Stage 2

Simplifying your life

Once you’ve cleared helping your children with home deposits/mortgages and any other financial debt, you can start easing into a much more relaxed and simplified lifestyle.

·       Regular home maintenance (rather than major renovations/improvements)

·       Regular social activities – movies, theatre, catching up with family and friends, birthday presents and the like.

·       Local getaways – within the state or Australia

Stage 3

Finally, you’ll enter a phase that is more focused on supporting your health and wellbeing.

·       Aged care 

·       Increasing health care costs

·       Mobility needs

·       Should you stay in your current home or move to a care facility

Pre-retirement – what you need to be doing now

First, you need to have a spending and investment strategy in place.

This strategy must be flexible and adaptable to cope with ever changing life events that will surely follow.

Unexpected lump sum expenses, external influences on retirement savings such as adverse market movement and even regulatory changes can derail the best laid plans.

Finally, this is where your financial advisor comes in. 

While we don’t have crystal balls to predict future events, what we do have is pragmatic insight and knowledge as to what could happen and how to best protect your finances against these possible events.

You also need professional advice and guidance as to how much you can and should be drawing down on your savings along with future investments to keep that nest egg growing.

Then there is structuring your financial assets to access any Government Centrelink benefits if possible as a safety net.

Parkside InvestorPlus will help you transition into your retirement phase with solid and fundamental guidance to ensure you can not only support your financial obligations in retirement, yet also enjoy a lifestyle without compromise.