How much do I need to retire comfortably?

How much do I need to retire comfortably?

Question:

What would be the super amount/balance needed for a ‘comfortable’ retirement for couples when we reach our retirement age, which I understand is $56,406 in today’s dollars? My husband and I are 56 and 50 respectively, and have an SMSF with $600,000.

My answer:

Retirement planning is an ongoing, evolving process that requires plenty of foresight and I applaud you for thinking about it now. 

This is a common question that unfortunately cannot be answered based solely on the information you have provided. The answer will depend on many variables and your own expectations in regards to longevity of your money. 

Are you happy for your capital to run out at a particular age or you would prefer a perpetual income and the ability to pass your wealth on to the next generations? When do you wish to retire and what is your own idea of a comfortable retirement? 

The figures you have quoted as a comfortable retirement income are based on averages (ASFA Retirement Standard survey, June 2013) and they very rarely reflect reality. For example they only include $2,725 per year for an overseas holiday and they don’t allow for any extra cash for gifts to your grandkids...

Once you work out your own retirement budget you end up with a retirement income figure that reflects your own financial reality and you've completed the first step of many.

It’s important to realise that the retirement planning process is not a mathematical equation. It’s not just a matter of plugging the figures into a calculator. We live in a fast pace society that suggests it should be that simple. But even a simple calculation is only as good as the figures and assumptions used.

It is absolutely critical to realise that retirement income planning is way more complex and way more important to people than a single conversation. It requires expertise and the careful consideration of many factors. It requires wisdom – we know that a tomato is a fruit but we don’t put it in a fruit salad.

The next vital detail is to remember that every date and dollar specific retirement income plan (that also addresses ‘what if’ scenarios) requires a financial coach and their ongoing assistance to ensure you to stick to your plan. This is the only way of knowing whether you are on track with your retirement plans or not. And having this certainty is priceless.

I realise that the hardest thing for most people is the first step – to recognise and overcome the fear of experience and make an appointment to consult an expert. But it will take a lot of pressure off your shoulders. It can also mean the difference between getting it right and living the retirement you always wanted … and getting it all wrong.

by Michal Bodi

As published on FPA’s Ask an Expert website dedicated to promoting the value of financial advice - ttp://askanexpert.fpadifference.com.au/

Image courtesy of Michal Marcol / freedigitalphotos.net

Being smart about life insurance

Being smart about life insurance

Rather than looking at life insurance as something we need, it should be considered as something we want. It’s more about having peace of mind knowing that if things don’t exactly work out the way we want, it’s not the end. 

And who wouldn't want that? 

The problem is that life insurance is a very intangible thing and it’s only used at the time of grief – and no one wants to think about that.

The other problem is that our human nature loves shortcuts. We often seek the cheapest, the easiest, and the least painful way to obtain life insurance because, subconsciously, we don’t want to overcome the fear of new experience and seek a professional’s help.

 And that in itself is a tragedy waiting to happen.

We all make future plans for our family or a business. We assume these plans will be successful – pay off the mortgage, save for regular ski trips, having regular holidays, give our children education they deserve, retire worry-free, build our family’s wealth, grow our business, or how about simply maintaining and enjoying the good lifestyle, spending as much time as possible with the family and generally being happy… does it ring a bell?

I am no different and I sincerely hope you will be able to achieve all of them and more. But hoping is not planning and smart people have a plan in place. 

Proper planning requires relevant expertise.  There is no harm in 'googling' information and gaining some self-education prior to seeking help. We all do it every day. But when it comes to decision making there is simply too much to consider and you want to get every detail right. 

Only a qualified and experienced financial planner will be able to:

• help you dig deep and articulate everything you value and need to plan for

• translate it into financial terms and calculate the dollar figures reflecting the cost of not being able to achieve these

• evaluate all the risks and asses the probabilities of them happening

• work out a relevant protection strategy including appropriate types of cover, sums insured, structuring, ownership and potential tax consequences

• consider alternatives and recommend a suitable insurer that will pay the claim

Every single step can make a huge difference. At the end of the day, you want to have the confidence that if needed, the cover will be used for what it is intended– to pay your claim.

Hiring a financial planner means having a professional looking at your personal circumstances and recommending a tailored solution that fits your plans, reviewing its appropriateness over time, as well as helping you through the overwhelming process of making a claim. 

So if you’re considering insurance or you have some in place but you never consulted a financial planner, I hope I've inspired you to take action. Your family or your business partner might thank you one day.

by Michal Bodi

Image courtesy of Vichaya Kiatying-Angsulee  / FreeDigitalPhotos.net