When you are preparing for retirement or retired already,
one of the biggest questions is: How much income do I need in my retirement?
And then the second question should be: How do I get that income?
Well, you could try some of those options:
Invest money to get the highest return – well, who cares about market being so unpredictable?
Withdraw the least,
eat grass from your garden,
don’t go out,
avoid your grandkids.
Well, I don’t think this kind of the advice would serve you well or for very long.
So today, we will dig deeper into this issue of retirement income, how much do you need,
how to structure your money and how you can create income security for the rest of your life.
My name is Katherine Isbrandt from About Retirement, I am CFP and Retirement Planning is really my passion.
And this is About Retirement TV, the place to find all the financial information you need to get ready for your retirement,
or if you have already retired how to improve your income, your assets,
for reliable and predictable income and to create financial security for life.
Isn’t it what we all want?
“Retirement is a Journey NOT a Destination, so please be well prepared for your retirement ride”
According to AFSA (Australian Financial Security Authority) if you are a retired couple,
you need an income of $42,560 to have a “modest lifestyle”.
A modest lifestyle means you can cover your bills, you have sufficient income to buy food and pay for basic emergencies,
but not really to have comfort of overseas holidays or to buy big presents for your grandchildren.
Then to have a “comfortable lifestyle” which covers those extras,
AFSA estimates a retired couple would need an income of $62,269 per annum.
If we look at income needs for a single person, AFSA says that a “modest lifestyle” can be achieved with $28,165
and to have a comfortable lifestyle a single person would need an income of $44,146 per annum.
If we compare those income needs with the level of Age Pension,
we can see the shortfall in every single situation, even for a “modest lifestyle”.
Single Pensioner – needs $28,165, while the full Age Pension provides only $24,770,
therefore we have an annual shortfall of $3,395.00.
Retired couple needs $44,146 per annum for “modest lifestyle”
while the full combined Age Pension will provide a retired couple with an annual income of $37,341 – shortfall of $6,805.
I wonder – do you agree with AFSA about that level of income for modest or comfortable lifestyle?
What is your number? Let me know in the comments below the video,
what do you believe the retirement income should be? And while you are doing it, give this video a LIKE and SUSBSCRIBE,
so you never miss another video of mine.
So looking at those figures immediately you can see that there is an income discrepancy
between the full Age Pension benefit and the income required to meet “modest lifestyle”.
And this is why your very first step should be to cover that amount with regular, secure and predictable income,
as if you had wages for the rest of your life. And make it increases with CPI (Consumer Price Index)
so it can keep up with inflation year after year. Now, if you are a person who believes the “modest lifestyle”
requires more than what AFSA calculated and you have sufficient savings to do so,
adjust your minimum income needs as you see fit for your retirement.
From my conversations with retirees, I can see that most single pensioners estimate their minimum annual income needs requirement
at $40,000 and a couple at approximately $52,000.
That means the gap between the needs and Centrelink Age Pension payment is even greater.
But hopefully you have assets to provide you with this additional income above the Age Pension payments.
The problem however arises now,
that you need assets to create a supplementary income on the top of your Age Pension, but exactly those assets,
that we just agreed you need for income reasons, can very easily reduce your Age Pension benefits
under either Income or Assets Test or both.
If you do not know how those tests work, check out my video “Age Pension explained”.
The whole trick in organising your money is to find the optimum balance
between investing into assets that potentially can improve your Age Pension benefit,
provide income certainty and assets growth over time.
So now let's have a look how you should really structure your income if this is an option for you.
1. The greatest possible part of your income should come from the government Age Pension - Why? you might ask -
because Age Pension is a sort of guaranteed income - no matter what happens anywhere in the world,
the government will always pay you your entitlement.
Also the more age pension you receive, the less of your own savings you have to spend and we all like that idea don't we.
2. Once you have your Age Pension organized, this payment is to be supplemented then
by a secure and predictable level of income from your own investments.
the best case scenario is when those two payments combined provide you with the level that you require to meet your “modest lifestyle”
– this way, no matter what happens in your life, no matter what the market is doing,
you can meet your lifestyle needs.
Even if we have the next GFC (Global Financial Crises) – remember terrible market fall in 2008 and 2009?
for some industries and some stocks it took over 20 years to recover.
Imagine having all your money affected by GFC at the time when you were ready to retire.
Possibly the worse possible time to do that.
Also, we don’t have to look that far back, recent events of Covid, when in March 2020 market tumbled again.
Fortunately, this time, it was short-lived, and we witnessed a very speedy recovery.
But those are the events you should try to avoid with investments that are to
provide you with this minimum required level of income to support your “modest lifestyle”.
3. Once you have organized your income to meet your modest lifestyle
now you can breathe with content and relax knowing that you will be okay no matter what,
and then look at investment that will additionally support your income,
while invested also to achieve some degree of capital growth.
Your savings can extend the life of your income, by being partially invested into different forms of income streams,
or shares or property sector, where you can achieve some capital growth, but you don’t rely on it,
this is your “cream on the cake” kind of thing and based on your circumstances,
you can either continue reinvesting it, or withdraw portion for those big presies for you grand kids
or this fabulous holiday you always wanted to have.
I hope you found this video of benefit and I wonder – what was your biggest take-away today?
Do you agree with AFSA with their findings about our income lifestyle needs?
So, again to like this video and subscribe, not only because you will be notified of my next video,
but to tell YouTube that my videos are of good quality and important content.
The more people like it, the more people subscribe, the more YouTube will be showing my videos to others that might need this information
Just like you did. Also, please check out my website: About Retirement.com.au
where you can find lots of additional information about topic of retirement,
and while you are there, just sign up to my email list to keep up to date with changes that could affect your retirement.
And now have a look at those two videos:
first one is full explanation of the Age Pension eligibility rules
together with income and asset test explanation.
The second video is the most viewed on my channel
“How to hide assets from Centrelink”
great ideas to improve your Age Pension entitlement.
See you in my next video. Bye!