Surviving Financially in Retirement?

The Main Question.

When I was about 45 my accountant asked me how much money I needed in retirement. I had never thought about that question, so my answer was around half of what I earned then. He looked puzzled and asked how I came to that conclusion.  I said – “It’s easy.  Take away all the money I spend on the car going to and from work, reduce the requirements for me to spend money on work clothes, entertaining work mates, and my house will be paid off so there you have it. ”

Well I was wrong!  As he pointed out, what I didn’t spend on car expenses, I would spend on doctors visits, and what I didn’t spend on house payments I’d spend on travel and other things.  So how much do you need in retirement?  If you go to the retirement  planning websites, or listen to the Superannuation ads you will discover that unless you have a million dollars or more you’ll starve to death sometime when the money runs out.

Obviously, that’s just not true because in Australia you won’t run out of money! If you are married, and own your own home, the age pension will give you a maximum of about $38,000 per year to live on. This is probably not the greatest income you have ever had, but it means you won’t starve either. Centrelink will give you even more if you don’t own your home but you will also have to pay rent.

So can you live on $38,000?  No, really can you? You need to find out quickly – it will relieve the stress you feel about retirement!

Find a Good Budget Calculator

To find out, I went to the ASIC budget calculator. At least its from the government so it shouldn’t have a bias.  To find it click here .  I need to add this is an Australian calculator, but if you ignore the dollar sign it should work in whatever currency you choose.

I firstly chose an annual view on the top right.  The reason for this will become obvious later.

Income

Next, I clicked on the income tab and a detailed income screen drops down. Put $773 into your take home pay field (Centrelink maximum fortnightly pension rate)  and then put $773 into your spouses take home pay field. Assuming you are married and own your own home.  Make sure you change the income from weekly to fortnightly since that’s what Centrelink work on. If you want to, you could use the Centrelink benefits field but it gives exactly the same result. If you have income from other sources such as a superannuation fund then you can add them in the appropriate place.

Can I just add, that if you have as little as $20,000 in superannuation or savings when you retire, it can provide an income of approximately $40 per fortnight for every fortnight between your retirement age (67) and the average age that people die (82). If you divide what savings (including superannuation) you will have at retirement, by 20 and then the remainder by 52, this will give you your weekly income from your savings. This assumes you are earning no interest so whatever interest you earn will help if you plan to live longer than the average person. Of course when your combined savings pass $420,000 your pension will reduce and you need to look up this page to see how it affects your pension amount.

Home and Utilities.

Next click on the Home and Utilities tab. Get the latest statements from your council for rates and water and add them to the appropriate fields.  Again make sure you change the frequency field to quarterly if that’s the way you pay them.  You need to find your latest electricity bill, gas, internet, phone, mobile bills and add each one into the appropriate category making sure the frequency tab is correct.  Don’t just guess, get the real figures!

Insurances.

A click on the insurance tab, reveals other items of expenditure.  Health insurance, life insurance, car insurance and loans.  Add all those that you pay and the frequency of payments.  Try not to guess but add the figures from the last bills where possible.

Go through each of the remaining tabs adding your figures for groceries (ask your wife if you don’t know), medical costs, entertainment, transport and children.  Finally the summary at the bottom will tell you how much you have left or are overspending annually (as you selected that at the beginning). Now change the tab at the top to monthly to find out how much you have left of overspend per month.

Be Careful.

Just one word of caution. Because many of the bills I pay are annual or quarterly, there are months in which I overspend my monthly budget.  So, when my car insurance is due and the rates and water in the same month, I will overspend.  But at the same time, there will be other months in which I have a surplus. Don’t spend the surplus just because you have one in one month because as sure as night follows day, a bad month is not far away!

The Result

If you are spending more than the pension provided, you need to review the things you spend money on. However, based on the experience of others who have walked that journey, you can find a way to survive and maybe even save a small amount of money in the process.