Cost of Retirement – How Much Is Enough for a Comfortable Lifestyle?

Posted on 12 August 2022
Cost of Retirement – How Much Is Enough for a Comfortable Lifestyle?

(Feedsy Exclusive)

No one can blame you if, during your 20s and 30s, you didn’t really think much about retirement. If you’ve been putting away a reasonable fixed amount (about 10% of your monthly salary) toward your savings since you first started working, it’s highly possible you’re set for life.

But if you haven’t been saving regularly, and you want to maintain your present standard of living well into retirement, you’ll probably need to save more than half of your annual income.

Of course, the amount you’ll have to save also depends on how old you are now and how early (or late) you plan to retire. If you want to live a comfortable life, you also have to factor in your criteria for what living a comfortable life is all about.

In case you’re feeling a little lost and want to know the average cost of retirement per month, then this article can help.

The Retirement Standard According to ASFA

The Association of Superannuation Funds of Australia (ASFA) invests a ton of resources in keeping track of retirement expenses and providing estimates on the cost of retirement in Australia.

Each year, ASFA releases budgets for seniors who may be single or living as a couple, providing approximations on how much money they’ll need to maintain a modest or comfortable standard of living. The document called the Retirement Standard is a terrific resource if you want to get a fair idea of how much money you should be saving for retirement.

The Standard presents three broad lifestyle categories: a comfortable retirement, a modest retirement, and a retirement completely supported by the Age Pension.

  • Comfortable: A comfortable retirement entails having enough money to cover healthcare, house repairs, local holidays, occasional trips abroad, a good-quality car, regular leisure and lifestyle activities, as well as a few other luxuries that go into daily living. Maintaining a comfortable lifestyle is predicted to cost about $65,445 per year for couples between the ages of 65 and 85. A single person might need a budget of $46,494 annually to maintain the same standard of living.
  • Modest: Cutbacks in many living expenses are necessary for a modest retirement. However, this lifestyle still allows for the purchase of a car and participation in plenty of leisure activities that probably won’t include overseas holidays. A modest lifestyle could cost about $42,621 per year for couples between the ages of 65 and 85. For a single person, a $29,632 annual budget may be enough to cover expenses.
  • Age Pension-dependent: Retirement supported by the Age Pension typically entails a conservative way of life as you’ll be living on a limited budget. This means the majority of spending would be restricted to necessities. For couples, their combined Age Pension will provide around $35,000 per annum. For individuals, the amount would be approximately $23,000. Note that your Age Pension will vary depending on your income and assets. Since this amount falls short of even the moderate threshold for retirement, there wouldn’t be money to spare for luxuries or non-essential items.

While these ASFA estimates are based on data-based projections, they don’t consider the average monthly cost of retirement homes in the distant future, that is, in case you don’t see yourself living in your own home.

However, the above figures can serve as a guide as you try to build up your retirement fund. And to ensure you cope well with the cost of retirement in the future, it’s best to start saving today.

 

 

If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.

 

Posted in:News  

Super for self-employed people – Why and how to pay yourself super

Posted on 7 July 2022
Super for self-employed people – Why and how to pay yourself super

MoneySmart
(www.moneysmart.gov.au)

You don’t have to pay yourself super, but when you retire, you might be glad you did.

You can make regular or lump sum payments, can usually claim a tax deduction on contributions, and may be able to save tax.

 

Why pay yourself super

There are advantages to contributing to super:

  • You save for your retirement.
  • You can claim a tax deduction for super contributions.
  • Super contributions are taxed at 15%, so you may save tax depending on your situation.
  • Super investments usually get better returns than bank savings accounts, so your savings will grow faster.

Use our super calculator

Work out how much you can save for your retirement.

How to pay yourself super

If you already have a super fund, check that you can make contributions when you’re self-employed. You’ll need to give your fund your tax file number (TFN) so they can accept contributions.

Check if moving from employee to self-employed affects the insurance cover through your super. Insurance terms and conditions vary from fund to fund.

If you don’t have a fund, see choosing a super fund.

Transfer a regular amount or a lump sum

There are two ways to contribute, depending on how you pay yourself. If you receive:

  • A wage — set up a regular transfer into super from your before-tax income.
  • Income from business revenue — transfer a lump sum when you have enough cash flow.

Tax deductions for super contributions

You can claim a tax deduction for contributions you make from your after-tax income (known as personal super contributions).

To claim a tax deduction, you need to send a ‘Notice of intent to claim’ form to your super fund and receive an acknowledgement from your fund.

See claiming deductions for personal super contributions on the Australian Taxation Office (ATO) website for detailed information.

Always confirm the details of any super contributions with your accountant or tax agent.

How much to contribute to super

As a guide, employers contribute at least 10.5% of an employee’s earnings to super.

There are limits to how much you can contribute each financial year:

  • up to $27,500 in concessional contributions (from your pre-tax income, for which you can claim a deduction), and
  • up to $110,000 in non-concessional contributions (from your after-tax income)

The ATO has more information about super contribution caps.

If you’re on a low income, you may be eligible for government super contributions, see super contributions.

 

Posted in:News  

Federal Election Opportunities: Proposed to Commence from 1 July 2022

Posted on 1 July 2022

(Feedsy Exclusive)

Proposed changes to superannuation, home buyer support, social security, and more have come out on the heels of the recent federal election and Federal Budget. Here’s what you need to know

The following proposed changes relate to social security programs and downsizer contributions.

Deeming Rates

Eligibility for many social security benefits is based on your income and assets. Deeming rules impact some income tests for certain concession cards, such as the Low Income Health Card and the Commonwealth Seniors Health Card. The deeming rate is an assumed rate of return on certain investments regardless of actual income, interest, dividends, and capital gains.

The current rates came into effect on 1 May 2020, and the federal commitment is to freeze deeming rates until the year 2024. While the proposed changes won’t decrease income, you may be allowed greater financial investment levels. Your entitlement calculations will automatically be adjusted by the Department of Veterans Affairs or Centrelink.

Commonwealth Seniors Health Card Eligibility

If you are of your Age Pension age but do not qualify based on income or assets, you may be eligible for the Commonwealth Seniors Health Card (CSHC) because it has its own income test. Your income for the purposes of CSHC eligibility is based on certain retirement income streams and adjusted taxable income.

The income eligibility thresholds are expected to change from $57,761 to $90,000 for single households, $92,416 to $144,000 for couples, and $115,422 to $180,000 for illness-separated couples. If you currently hold a CSHC, you don’t need to do anything. If you become eligible, you need to apply with Centrelink and provide income and identification documents.

Downsizer Contributions

Downsizer contributions let people contribute some or all of house sale proceeds — up to $300,000 for an individual or $600,000 for a couple — to superannuation and do not affect other caps. They do not have a “total super balance limit” or upper age limit, unlike personal after-tax and other contributions. The current eligibility age is 65 and will be going to age 60 on 1 July 2022 —  the proposal is to reduce it to age 55 on 1 July 2022 instead.

Downsizer contributions can help you raise or maintain pension or other benefit entitlement for you or your partner. They do not count towards your concessional and non-concessional caps.

Proposed to Commence 1 January 2023

The following proposed changes relate to buying and purchasing homes.

Home Sale Proceeds Exemption

If you receive social security and sell your primary residence, there is currently a 12-month exemption that applies to a portion of sale proceeds intended towards purchasing, constructing, or renovating your new primary residence. The government is proposing to extend this exemption for another period — the earlier of 12 months or purchase, construction, or renovation of the new primary residence.

The extended exemption would be available under circumstances involving delay over which you had no control and is a discretionary exemption granted by Centrelink or the Department of Veterans Affairs. There remains no income test exemption.

Regional First Home Buyer Support

The government is proposing a Regional First Home Buyer Scheme to provide support in the form of a government guarantee of up to 15% of the purchase price for 10,000 first home buyers. This would essentially allow eligible first home buyers to avoid having to pay mortgage insurance. To qualify, you must be an Australian citizen and first home buyer over the age of 18, reside outside a capital city for at least the previous 12 months, live in the purchased property, and have a taxable income up to $125,000 for a single or $200,000 for a couple.

Other support schemes — such as the First Home Super Saver Scheme and state-based programs and grants — will continue to operate in addition to the Regional First Home Buyer Support. Price thresholds will depend on where the property is located.

Commencement Yet to Be Determined

The proposed commencement date for the Help to Buy scheme has not yet been announced. Help to Buy is a shared equity scheme that provides support — for up to 40% of a new home’s purchase price and up to 30% for a current home — to up to 10,000 people every year. This will avoid the necessity for Lenders Mortgage Insurance, but you will have to have at least a 2% deposit.

After you make the initial purchase, it would then be possible to buy additional property interests (at least 5%) from the government without needing to pay the government rent for its share. Note that where you make more than the annual income caps for two consecutive years, you will have to partly or fully repay the government contribution based on affordability — though the method of determining how this requirement would work has not been announced.

Time to Talk to Your Financial Adviser

These proposals are not yet law until they are legislated into effect, so commencement dates and details may change. You should not act on these proposed changes without first consulting your financial advisers, who can provide further up-to-date information and help you understand how and if you may be able to take advantage of them.

If this article has inspired you to think about your own unique situation and, importantly, what you and your family are going through right now, please contact your advice professional.

 

 

Posted in:News  

RBA warns of damage from rising inflation

Posted on 27 June 2022
RBA warns of damage from rising inflation

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

The Reserve Bank board is committed to doing what is necessary to ensure inflation returns to the two to three per cent target and households should be prepared for further interest rate rises, governor Philip Lowe has warned.

He said while rising inflation had been driven by global events, increasingly domestic factors in Australia were coming into play.

“Following the strong recovery from the pandemic, growth in domestic spending is now testing the ability of the economy to meet the demand for goods and services,” Dr Lowe told a forum in Sydney on Tuesday.

“This is particularly evident in the labour market, with many firms reporting that the availability of labour is a significant constraint on their ability to operate and/or expand.”

Petrol prices have also risen further due to global developments and the outlooks for retail electricity and gas prices have been revised higher due to pressures on capacity in that sector.

The RBA raised its inflation forecast to a peak of around seven per cent in the December quarter, having earlier predicted a top of six per cent.

“High inflation damages the economy, reduces the purchasing power of people’s incomes and devalues people’s savings,” Dr Lowe told the American Chamber of Commerce in Australia event.

“It is also regressive, hurting most those who are least well equipped to protect themselves.”

As such, it is important the RBA charts a way back to the two to three per cent inflation target, although Dr Lowe concedes this can’t be done immediately.

“Australians should be prepared for more interest rate increases,” Dr Lowe said.

“The level of interest rates is still very low for an economy with low unemployment and that is experiencing high inflation.”

The RBA board has raised the cash rate at its past two monthly meetings by a total of 75 basis points, the latter being a 50 basis point increase and the largest rise since February 2000.

“We decided to make a bigger, 50 basis points, adjustment on the basis of the additional information suggesting a further upward revision to an already high inflation forecast,” Dr Lowe said.

“The board also gave consideration to the fact that the level of interest rates was still very low.”

Economists are predicting another 50 basis point rise in July, which would take the cash rate to 1.35 per cent.

“I want to emphasise though that we are not on a pre-set path,” the governor said.

“How fast we increase interest rates, and how far we need to go, will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”

 

Posted in:News  

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