Host: Jovan Cvetkoski is in the studio with us – director and financial adviser with Knight Group. If anyone wants to put a question about the end of the financial year or their rights, don’t hesitate to call. In the meantime – what makes up a comfortable retirement? People are always doubtful about whether they’ve got enough.
Jovan: The cost of a comfortable retirement in Australia has soared over the last five years – no secret why: inflation has eroded our purchasing power. According to the Association of Superannuation Funds of Australia (ASFA), a comfortable retirement means top-level private health insurance, pharmacy needs, doctors and specialist visits, owning and maintaining a reasonable car, regular leisure – club memberships, cinema, dance, yoga, exhibitions – home repairs, kitchen and bathroom updates, professional haircuts, the confidence to run your air conditioning, one annual domestic trip to visit family and one overseas trip every seven years.
Host: Everyone has a different style of life, don’t they? So what’s the number?
Jovan: ASFA applies a number across the board. Five years ago, for a couple it was $63,000 a year. Today it’s $78,566 a year, and $55,923 – call it $56,000 – if you’re single.
Host: And that’s if you own your own home?
Jovan: Yes. These standards assume you retire at 67 and own your home. If you’re a homeowner relying on the age pension alone, you’re well short of a comfortable retirement – and this comfortable-retirement number has grown 26% in the last five years. The key drivers of rising costs are electricity, fuel, water, council rates, some food, maintenance and insurance.
Caller (Jerry, 65): I’ve got a rental property as well as my own home. Should I sell the investment property, pay off the two mortgages and work towards retirement?
Jovan: That can be wise, but answer a few questions first. If you sell, how much capital gains tax will you pay? What are your net proceeds after tax and costs? What’s left after repaying the two mortgages, and what do you do with it? CGT is paid at tax time – if you have a tax agent you don’t lodge until around May of the following year, so it’s a little way off. In the meantime the money could sit in a high-interest account, or go into super. It’s very hard to go into retirement with debt.
Host: Now – how much do you need in super for a comfortable retirement?
Jovan: Based on those ASFA numbers, about $730,000 if you’re a couple and $630,000 if you’re single – a combination of drawing from your super and receiving a part age pension. As you draw down, you tend to receive more age pension over time.
Host: What advice would you give someone thinking about retiring?
Jovan: Ideally, retire with no debt. Check whether your super is on track for the age you want to retire, and whether your mortgage will be paid off by then. If you’ll be light, consider downsizing to free up equity in the family home. If you’re self-funded, make sure your funds return an appropriate level of income and growth to protect against inflation, and check whether you’re eligible for a Commonwealth Seniors Health Card. When you sit down with an adviser, bring your full financial position – assets and liabilities, what you earn, what’s in super, investment properties and what you paid for them, your home’s value, any debts and insurances.
Host: It puts your mind at rest. A lot of people have anxiety about running out of money. Good on you, Jovan – as always, thank you.
