Golden years Whether it’s overseas holidays with the family, or a more modest life closer to home, there are retirement plans to suit every budget, writes Duncan Hughes.

About 3000 Australians retire every week and the most pressing question for many is: have I saved enough? The Association of Super Funds of Australia regularly updates what it calls its retirement income standard, which attempts to show what is needed for a ‘‘modest’’ versus ‘‘comfortable’’ retirement.

Assuming mortgage-free home ownership, the annual budget for a couple seeking a comfortable lifestyle is about $70,000, and $45,000 for modest, the analysis shows.

Consultancy BDO has built on that information to provide some estimates for what might be described as an affluent lifestyle. Roughly speaking (very roughly speaking because there are so many caveats), a lump sum at retirement of between $2.5 million and $3 million could provide an annual income of about $150,000, BDO financial advisor Kelly Kennedy says.

At this level, a couple can probably plan two luxury holidays a year, home renovations every five to 10 years and comprehensive health insurance.

‘‘Everyone’s retirement planning is a puzzle with unique pieces that fit their lifestyle,’’ Kennedy says, adding that the most common mistake is not planning early enough. It is also very important for couples to agree on their goals and expectations before they formally exit the workforce, she says.

‘‘If you need to make changes or sacrifices in the lead-up to retirement, being on the same page can make that less challenging.’’

The budget for affluent retirees is about four times that of a couple retiring with “modest” private savings of about $100,000 and access to the government-funded age pension, giving them $45,000 a year.

As official figures from the Australian Bureau of Statistics show, the retirement phase of life is increasingly long. Women retiring at the age of 64 have a typical life expectancy of another 20 years – for men it is 16 years.

So, where to start?

The government-sponsored MoneySmart Retirement Plan ( is free and can estimate income from super and the age pension, how contributions, investment options and retirement age affect retirement income, as well as how working part-time or taking a break from work affect a super balance.

‘‘The big questions new retirees ask is how much do they need for a comfortable retirement, how long will their savings last, will it keep up with inflation and how can they make it last longer,’’ says Wayne Strandquist, president of the Association of Independent Retirees (AIR), which represents current and future partly and fully self-funded retirees.

For many Australians, the age pension remains a critical part of retirement planning, particularly for older retirees who need to top up on depleted lump sums, he says.

Olivia Maragna, co-founder of Aspire Retire Financial Services, which typically advises high-net-worth clients, recommends pre-retirees monitor their lifestyle and living costs by checking their bank and credit card accounts over a three-month period and then multiply by four to get an approximation of annual spending.

‘‘A lot of people say they do not live lavishly but are surprised to find their annual budget is around $250,000,’’ she says.

Fund manager Paul Huggins is more fortunate than many in that he can afford to live very well in retirement. He says a good lifestyle will mean being able to pursue hobbies ranging from buying art and fine wines to long days on the golf course, travelling, or indulging in his passions: classic cars.

He is provisioning for the typical budget of a classic car enthusiast, which is between $100,000 and $250,000, and says although money is important, the most successful retirees are those with plenty of interests. ‘‘I don’t have a retirement date,’’ Huggins says. ‘‘I get the most joy from cars and working.’’

Other would-be retirees might find planning and budgeting a bit more challenging.

Author Bec Wilson, who is next week launching a new podcast about preparing retirement with Nine, which owns AFR Weekend, says the first step is to take time to build a vision of life post-work. The process can take months or even years, she says. ‘‘Take time to ponder your goals and dreams. Read as widely as you can for inspiration.’’

The second step is to break those dreams down into specific line items from which to construct a budget. ‘‘I suggest people budget their retirement costs out in two separate spreadsheets – one for budgeting your cost of everyday living, and the other for budgeting out your one-off expenses,’’ Wilson says.

‘‘Both need to be based on specific itemised expenses you expect.’’

Think particularly hard about the first 10 to 15 years of your retirement because they are the years when spending is typically highest because retirees are in the best health, Wilson says.

‘‘Maybe there’s a special multi-generational family holiday that you want to fund your family on to celebrate an anniversary or significant birthday.

‘‘Then think about your cars, and how often you might want to replace them, and how much you want to allocate, as a periodic budget, and how that would divide back to an annual figure. And think about what you might need in your budget to maintain your home, or modify it to age with you.’’

The third and final step in the budgeting process is to try and work out what that looks like for you as a total capital amount over your lifetime. And, seek advice.

‘‘Financial advisers have excellent software that they can plug all your budget numbers into and project how much you might need to live your retirement dreams, and they’ll keenly use all the hard work you’ve done here to get there,’’ Wilson says.

BDO’s Kennedy says the amount needed for retirement varies for each client depending on lifestyle, age and whether they want to provide for their children or ‘‘SKI’’, an acronym for ‘‘spend kids’ inheritance’’.

‘‘I’ve even had clients saying the last cheque can bounce,’’ she says.

‘‘But then I’ve had other clients who want to retain the value of their capital throughout retirement because they want to leave a specific legacy. And some people might have charitable and philanthropic wishes. Clients are also asking about how providing a house deposit for their adult children is going to impact my ability to fund my retirement.’’

When working on scenarios with clients, Kennedy builds in assumptions such as the likelihood that expenses will decrease by about 10 per cent every five years.

She says some of the common mistakes of retirement planning include underestimating the impact of inflation, which can be especially hurtful for people on fixed incomes.

Another is underestimating how long you will live, or longevity risk. ‘‘I generally do modelling for my clients to age 100 because it’s best to err on the side of caution,’’ she says.

Working out a lump sum with which you need to retire is also tricky. Wilson says simply multiplying the total expense budget per year by the number of years you plan to live will not calculate the amount you need.

‘‘You need to consider how your total investments will compound over time,’’ she says. ‘‘The 10/30/60 rule of thumb says that we generate 60 per cent of our investment returns during our retirement years from the money we have invested – so you many not need as large a topline amount as you think.’’

A recent Intergenerational Report found that many retirees are living too frugally because they feared they would run out of money before they died and not be able to afford medical care.

Treasurer Jim Chalmers is among those calling on super funds to produce better ways to give members confidence that their retirement savings will last.

Greg Lowe, 64, and his partner Marina are attempting to boost their super savings by using their real estate investments to achieve a ‘‘comfortable retirement’’ income of about $70,000 a year.

The Canberra-based maintenance officer is using the large backyard of his Canberra investment property to build a three-bedroom apartment to generate additional rental income.

‘‘It may be pretty valuable,’’ says Lowe, a father of three adult children and three grandchildren, about his retirement income strategy.

Strong demand and rising rents help to offset fluctuating returns in their account-based pension caused by volatility in global equity and bonds markets.

For Lowe, the ASFA retirement lifestyle guide predicts the couple will be able to have one holiday in Australia a year, own a reasonable car and afford an occasional bottle of wine.

They will also be able to continue private health insurance, take part in a range of regular leisure activities and buy good clothes.

Brendan Ryan, principal of Later Life Advice, an independent financial adviser, says couples who own a home and have an asset test threshold of just over $1 million could still be eligible for a part-age pension. “If you are eligible for $1 of pension you can unlock a suite of discounts, entitlements, rebates and preferential thresholds,’’ Ryan says.

Some retirees experiment with ways to boost their budgets, including tapping equity in the family home or downsizing and adding extra contributions to super.

Frank Walmsley, a director of Canberra Granny Flat Builders, says many people coming up to retirement have big gaps in their super because mandatory funding was not introduced until 1992.

‘‘They are using a second house on their property to generate income for their retirement,’’ Walmsley says. He says typical three-bedroom backyard apartments costing around $300,000 are producing rents of about $700 a week in Canberra.SI