Resetting your retirement goals: How to hit the moving target

It’s generally agreed that retirement is not a ‘set and forget’ proposition. On the one hand this can sound as though we need to continually monitor our situation. But the flipside of this is that it is literally never too late to change our settings and improve our situation. What do I mean by this? Simply that there are different trigger points and decision times across a full retirement journey. Knowing how these work is therefore key to making the most of your savings.

Today we look at three different retirement ‘ages and stages’ through the goals of a typical couple and consider some of the ways they might use a trigger point to rethink and reshape their retirement. These stages are:

• Age 65,
• Age 67 and
• Age 75.

Meet Allie and Ben

Our ‘typical’ couple, Allie, 62, and Ben, 64 , are homeowners with a mortgage. They are also empty nesters with close to the median amount of super saved, just on $400,000 combined. They work part-time and are in reasonable health. Their retirement goals are:

• to live on about 80% of their pre-retirement income, 
• to maintain good health, 
• to enjoy each other and their local community and 
• to spend some time with grandchildren and travelling when possible. 

They wish they didn’t have a mortgage ($100,000) but are not sure whether to reduce it by using a lump sum withdrawn from their super. They would also like to make their home ‘retirement ready’ so that it suits their needs as they get much older.

Approaching 65

It seems that Allie and Ben have started thinking about their needs and therefore some of the goals that matter most to them. But what should they address specifically as they approach 65?

There are three main things that stand out:

• Will they get an Age Pension?
• Will they retire at different times?
• How can they maximise their super?

A couples’ combined full Age Pension is worth almost $45,000 per annum – this amounts to nearly $1 million across a 22 year retirement. So it is a vital first step for pre-retirees to understand this foundational part of their income:  Will they get an Age Pension? And if so, how much?

Defining their dates of exit from the workforce is also important. There is a possibility that they may wish to continue working part-time and understanding pension eligibility (including the Work Bonus) may help them shape their work plans. If Ben, being older, retires first and Allie  keeps her  super in accumulation, then her portion of super will not count towards the asset test, allowing Ben to receive a higher entitlement for a period of time.

There are many ways to maximise super for pre-retirees, including making extra contributions, by using some of the many rules that support these contributions. Exploring these options well before accessing super can help pre-retirees ensure that their use of super is properly aligned with their retirement goals. This exploration, in Ben and Allie’s case, may include checking whether using a lump sum to reduce their mortgage is the best option for their longer term needs. 

Approaching 67

As Ben turns 67 soon, he and Allie have decided that’s when he will leave his part-time job while Allie may keep working. They have checked eligibility and expect that Ben’s Age Pension and a modest super drawdown, supplemented by Allie’s income, will enable them to live a comfortable life until Allie retires and accesses her super as well. Their key questions and options at this stage are:

• How to apply for the Age Pension
• What is a safe spending level for Ben’s drawdown?
• Can they afford house renovations?

Ben can access a phone application service from Retirement Essentials for help with his Age Pension application. Or he can apply himself online or in person at a Centrelink office.

A Retirement Essentials Retirement Forecasting consultation allows the couple to see how the three strands of income (Age Pension, super drawdown and Allie’s salary) will combine and how the Age Pension might increase as super decreases. Picking the right time for Allie to access her super will become much clearer by viewing different scenarios using this calculator. It all comes down to knowing your own safe spending level.

Making decisions on how much to spend on your home can also be challenging. But not everything has to happen at once. Ben and Allie might withdraw a modest amount (say $20,000) to get urgent repairs done, and then review their needs as they adjust to living within a defined retirement income across the first few years.

Approaching 75

Rules about work and super change once Australians reach 75, 

If you’re 75 years or older, your fund can still accept further compulsory employer contributions. You can also make downsizer contributions if you satisfy all conditions. Other contributions, however, are not allowed.

Assuming Ben and Allie are now both retired on a full Age Pension and supplement this amount with their remaining super, some of their questions as they turn 75 might be focused on later life. These could include:

• Is downsizing a smart move? Is it financially attractive?
• Can we still afford private health insurance?
• What kind of aged care provision should we be making?
• Can we still afford to travel?

Again, these questions are highly personal and closely linked to their individual circumstances, needs and preferences. Some people will travel with a backpack on a very low budget until they are in their 90s. This is not for everyone. Here are some of the considerations which may help Ben and Allie achieve their goals. 

They originally wanted to stay in their community and with a low (or no) mortgage, they can probably do so if house maintenance is not too onerous both physically and financially. They can also explore home equity access if this enables them to stay in their own neighbourhood. Aged care provision does not necessarily mean they will have to move to an aged care facility. It may mean having sufficient funds for in-home services – this future spending can be modelled as well using the Retirement Forecaster calculator. The same is true for specific wants and needs including insurance and travel. By age 75 Ben and Allie are probably very aware of their recurring household expenditure and if they have anything left over for recreation. If they are still privately insured for health, they can run comparisons to see if there is a cheaper option. They can also consider the need for extras and decide if choosing hospital cover only is a better way of covering their needs. These types of calculations can then help inform whether they have the extra they need for travel or further renovations – perhaps for accessibility – or whether they may wish to free up some of their home equity.

The above three ages and stages are very typical – but the factors discussed only cover the tip of the iceberg when it comes to retirement funding decisions. The critical point, however, is that fully exploring your Age Pension eligibility, how your super can combine most successfully with these payments and how you approach different needs as you age is best done early, when you generally have the highest income and therefore the most options.

Retirement Essentials advisers have held thousands of consultations supporting members to articulate their preferred retirement goals sharing ways of achieving them. The following appointments may suit your needs along the way. Our advisers would love to be there to help you meet whatever goals you have along the way.

This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.

Maximising your entitlements helps you to assess any changes you might be able to make to maximise your Centrelink entitlements.

Retirement forecasting helps you to compare two scenarios of how your assets and income will look during your retirement journey.

Understanding your super assists you to assess the options which can make your super work better for you.

Understanding the impacts of your home helps you to compare the benefits of repaying or maintaining your mortgage in retirement.

Did you set retirement goals when you first stopped work?

Are they still useful and relevant? Or have they changed?

How do you keep tabs on the rules you need to know to manage any changes in your situation?