Planning for retirement may feel daunting but thinking ahead can make all the difference to your future comfort. The answers to these questions can guide you on where to start.
1. How much money do I need to retire?
“People can underestimate how much money they need for retirement and they’re often unsure how much income their super and other investments will provide,” says Ben Nash, founder of Pivot Wealth and author of Virgin Millionaire, who suggests that the “five per cent rule” is a good starting point. That means you can draw an income of about five per cent from your pool of assets without eating into the capital. For instance, if you have $400,000 invested—excluding the home you live in—that will provide an income of about $20,000 per year for 20 years.
Work out your baseline costs and outgoings, such as utilities, rent and car costs, and compare that to how much you’ll need for the lifestyle you want in retirement. To track how much income you’ll likely earn from your super when you retire, you can plug your numbers into a retirement planning calculator like the one at moneysmart.gov.au. Jackie Clark, director of education, engagement and events at Colonial First State says, “The Association of Superannuation Funds of Australia suggests you’ll need between $33,000 and $52,000 per year for a single person or about two-thirds of your current income.” It’s worth keeping those figures in mind.
2. What will I do with my time in retirement?
With retirement comes a seemingly unlimited amount of free time. It’s worth sitting down and planning what you’ll do day to day. Think about the hobbies you’ve always wanted to try but have never had time for. Do you want to spend a few days per week volunteering? Will you join a gym or enrol in a program at a college or TAFE?
“Keeping busy and doing things in retirement is good for your wellbeing and state of mind,” says Nash. While you might look forward to a slower-paced life in the early stages of retirement, it’s a good idea to think about how you’ll create opportunities to stay physically and mentally active as time passes—and what that will likely cost. “Remember that stopping full-time work can take some adjustment,” adds Clark. “But the possibilities are endless.”
3. Will I stay in my current home?
Downsizing can unlock capital to support a more comfortable lifestyle in retirement. “If you have a big property on a block of land that needs ongoing maintenance, that will get more difficult and costly to maintain as you age,” says Nash. “Downsizing can make life easier and provide an influx of cash to fund your retirement.” “The money from the sale of your home can be used to clear a mortgage or debt on investment properties,” he adds. “This reduces your liabilities and increases your cash flow. You can also put the money towards income-producing investments like shares that pay dividends or contribute to super.”
If you’re 55 years or older and sell the home you live in, you may be eligible to contribute a portion of the proceeds of the sale to your super fund—up to $300,000 as an individual or $600,000 as a couple. Just keep in mind that “any changes to your financial position can reduce your age pension, if you’re eligible to receive one,” says Clark.
4. How long will my super last once I retire?
Using the five per cent rule and a clear outline of your regular outgoing costs, you can get a fairly accurate estimate of how long your investments will likely last once you retire. If you’re worried, there are steps you can take to grow that nest egg today. “If you can, think about making voluntary pre-tax contributions to your super,” says Nash. “There’s a concessional limit of $30,000 per year, however, which includes any money paid by your employer under super guarantee rules.”
Most funds allow Australians to access their super at 65 and the average life expectancy is currently 83 years of age so you want to ensure that investment will last you in the ballpark of 20 years. “If retirement age is still some way away, this habit can make quite a difference over the longer term. We’re living longer and you don’t want to end up in a position where you’re healthy and want to do things but are running out of cash,” says Nash. “The key is to find the balance between enjoying retirement and catering for the future,” says Clark. “Getting financial advice is a great way to help you manage this.”
5. Can I keep working once I reach retirement age?
“A growing trend for many people approaching retirement is a move to part-time work,” says Clark. “This offers the chance to ‘test’ out retirement while continuing to work in a reduced capacity. If that interests you, it’s worth looking into a transition-to-retirement pension.” From the age of 60, you can access your super through the transition-to-retirement income stream. Under this model, you can access up to 10 per cent of your super balance per year to top up your wages.
Once you reach the age of 65 or fully retire, you will gain unrestricted access to your super. If you then decide to return to work, you will still be able to access your super while earning an income and making further contributions. It’s not uncommon to do this. In 2024, research from the Association of Superannuation Funds of Australia found that about 25 per cent of Australians aged 65 and over who are working plan to remain employed in order to stay socially engaged.
