How Don afforded his dream trip
Are you also dreaming of a big trip in 2024? So many of us are and Christmas is often when we have the time to check out airfares, accommodation and take the plunge.
But how do you know if you can afford a big trip? How do you gain the confidence to spend when it’s difficult to judge how long your money will last?
These were the questions posed by Don when he caught up with Nicole. He was both pleased and surprised to learn that he could afford to indulge his dreams of an Italian adventure next year. Don was widowed two years ago and now feels ready to get back out into the world. He’s hoping a group tour in northern Italy will give him a very social adventure to look forward to. Here’s how he and Nicole approached this challenge and how he was able to reach a successful financial outcome.
Many people are under-spending in retirement, sacrificing their dreams and their lifestyle, only to end up sitting on a large nest egg wishing that they’d gone hiking in the Dolomites when they had the chance. A lot of this has to do with our mindset. Changing from a saving mindset (that has been ingrained in us since we were young), to a spending mindset is a much bigger leap than most people anticipate. But this change does occur as we move into retirement. So how can you become more confident in your decision-making?
One of the most common questions our advisers are asked is, ‘How much will be enough for my retirement needs?
Nicole has more than 20 years’ experience in financial services. But she told us that she has never met two clients in the same situation. Everyone has a different mix of:
- retirement age
- super balance
- housing situation
- cost of living
- retirement travel dreams
- hobbies,
- kids they want to help,
- potential inheritance pipeline, and so on, and so on.
Every one of these considerations is another aspect that can influence retirement affordability. Retirement calculations are complex, so let’s look at the best starting point if you want to head off to Italy without the concern that you’ll end up having to start a new Uber driving career at 87:
Step one: Know where your money goes.
Perhaps the most decisive factor when you want to project if you can retire is working out how much money you will need to spend to be comfortable. Of course, everyone has a different idea of what ‘comfortable’ is, so despite all the figures you see floating around online, the success of your retirement depends on working this out for yourself. Remember, this is not a budget! It is a realistic plan and costing of the retirement lifestyle you would like to maintain. Moneysmart.gov.au has a simple but effective planning tool if you want some help to get started with this projection.
Step two: How much Age Pension are you likely to get?
No idea where to start with this? Why not use our free Age Pension Eligibility Calculator so that you have some indication of the amount of income for which you might be eligible. Sometimes when we think about our expenses, we worry that our retirement savings will run out too quickly. But it’s worth remembering that the vast majority of older Australians receive Age Pension benefits, if not now, then in the future. When this happens you are using less of your own savings, and more of the Government’s money, to support yourself. This means that your money might last longer than you think. It is common (and in fact completely normal) that your super balance reduces a little faster in the first years of retirement. This usually happens when you are active and receiving less Age Pension, but in most cases this rate slows down over time and remains sustainable.
Step three: So how long will Don’s money actually last?
And how many years will he lose if he books that trip to Italy?
This calculation is a little trickier. The above-mentioned Age Pension Eligibility Calculator provides some idea of what you could be eligible for in the short term. Over time, however, as your assets may decrease, so the Age Pension increases. So assets go down, but you’re now getting more Age Pension, so you don’t need to draw as much from your super. At this point in your calculations, you may need a little more help.
Some superannuation providers have basic calculators available online, but they often only have the capacity to look at how long money might last drawing the same amount every year through retirement, or if you only ever draw the ‘minimum’ that you have to. This is never the whole picture and may result in living well below your preferences and your means.
Retirement Essentials offers a Retirement Forecaster consultation during which we consider your level of spending, your assets, your retirement dreams… and we can run a scenario of Italy versus not Italy. It’s common for customers to be surprised by the outcome.
Buongiorno Roma!
Here’s what happened when Nicole worked with Don on his 2024 travel plans.
The group tour he has in mind will cost about $5500, his airfares are $5200 and his extra accommodation and expenses will be about $4,000. All up he believes that he will need to spend $15,000 on his Italian adventure.
Don currently has a super balance of $450,000 and is receiving a part Age Pension. After he has paid for his holiday, his Age Pension will increase by $45 per fortnight or $1170 per year. Using the Retirement Essentials Safe Spending Simulator, Nicole was able to show Don that this made a negligible difference with his retirement savings ‘running out’ at age 93.5 instead of 94.
Needless to say this was good news in Don’s opinion and he was genuinely excited to learn that his travel plans are totally doable.
If you have been reluctant to retire and make travel plans because you’re concerned you can’t afford it, make an appointment to work through your retirement options with one of our financial advisers. They can give you confidence moving forward that you have based your decisions on facts, and not fear. And, most importantly, how much you can safely spend.
Where would you like to travel in 2024? We’d love to hear your plans. And don’t forget to keep an eye on your inbox over the break for our first ever Retirement Essentials Travel 2024 update.
Hi my name is phill 70 years of age and still working. My wife is 70 been retired for 10 years and her super will last another 3 years
Can we discuss our retirement plans please or help out with part pension if qualified
Phill Thompson
Hi Phill, thanks for asking for additional support! Sorry I wasn’t able to reach you on the phone earlier, based on your enquiry I would recommend booking one of our Retirement Forecasting sessions HERE.
Hi Steven
I’m recently retired and on part pension and still learning the ropes. Your weekly newsletter is really useful, thank you.
My questions: do Centrelink make a distinction between ‘discretional’ spending and necessary spending? So if ‘Don’ withdraws $15,000 from his bank account (and hence reduces his assets), do Centerlink want to know what he is using the money for? If he buys a car with it, presumably the new car would be counted as an asset? But not a holiday?
Also, if Don were to take out a loan, or maybe access the redraw facility on his home-loan account, to pay for his holiday (or for anything else), is the bank loan regarded as a new asset?
Thanks.
Hi Ian, congratulations on starting the next big adventure in life – Retirement! These are some great questions but there are many variables to consider so a public chat forum is not the best place to discuss and/or resolve them. Please book one of our Entitlements Consultations HERE and we will be happy to give you a call and go through everything together with you.
I worked out Don’s predicament years ago. People “questioned” why we were spending so much on a long holiday and many were generally surprised at how positive it affects your own funds and the pension. Some opined that it was that old favourite double-dipping which sadly is a mindset of many pensioners. I simply replied that there were many other legal ways in the tax system for people far richer than me to maximise their financial position !!!
A gentleman called Ian has raised some good questions. Maybe an article regarding these would be interesting reading in the new year
Sounds good Judy I agree
I agree Judy sooner the better
When withdrawing $10,000 from super to pay credit cards do you need to advise Centrelink?
Best way to pay for travel….if you save in bak acc it affects pension…so best way to go about it ?
Hi Linda, yes you should notify Centrelink so they can reduce the balance of your super and recalculate your pension.
Agree Judy and Gloria. Ian’s questions are spot on. While everyone’s situation is different, there are some core fundamentals that would apply.
To all the team at RE thank you for so much needed info from your newsletters over the last few years. I will be signing off with this login and will make new one as i will not be working from Thursday (last day). The good life is about to start for me as i am retiring from then after 35yrs of work.HOORAYYYYY.I am only 55 but have done my homework and should have enough to see me out for the next 20YRS.Thankyou to all. Will sign back in with new login within a couple of days so i can keep updated with all your useful info.
Hi Steve, CONGRATULATIONS on your upcoming retirement! Now to start the next big adventure in life!
I agree ladies!
I would love just a “yes” “no” answer to Ian’s questions:
– Do Centrelink make a distinction between ‘discretional’ spending and necessary spending? (I’ve been advised “no – they just want you to use your Super”.
– If ‘Don’ withdraws $15,000 from his bank account (and hence reduces his assets), do Centrelink want to know what he is using the money for? (I’ve been advised “yes” but only to ascertain if you acquired a new asset e.g. a car)
– If he buys a car with it, presumably the new car would be counted as an asset? (I’ve been advised “yes”)
– If Don were to take out a loan, or maybe access the redraw facility on his home-loan account, to pay for his holiday (or for anything else), is the bank loan regarded as a new asset? (I’ve done this and will be redrawing from my super to reduce my mortgage. I’ve been advised they’re only interested in the balances of super, bank accounts and any new assets)
While I realize everyone’s situation is different, a lot of us only have around $250,000 at retirement and not really needing financial appointments.
I get nervous when advised various things by Centrelink because sometimes it depends on who you speak to – they are, after all, everyday people, moving in and out of various departments.
I read all your Newsletters (thank you).
I ask the same questions repeatedly at Centrelink and my own Super fund and then generally go with the answer I get the most :-/
I sometimes feel like I’m on a slippery slide but want to enjoy retirement while the body is still holding out. 🙂
Good luck everyone!!
Hi Rae, thanks for reaching out for further clarity, glad you are enjoying our newsletters!
1. Do Centrelink make a distinction between ‘discretional’ spending and necessary spending? (I’ve been advised “no – they just want you to use your Super”.) – This is correct, whether you spend money on paying bills or going on a holiday is of no impact to your Age Pension.
2. If ‘Don’ withdraws $15,000 from his bank account (and hence reduces his assets), do Centrelink want to know what he is using the money for? (I’ve been advised “yes” but only to ascertain if you acquired a new asset e.g. a car) – Correct again, Centrelink are fine with you spending your money on ‘things’ (as per the answer to Q1) they just need to be sure you aren’t reinvesting it in another asset.
3. If he buys a car with it, presumably the new car would be counted as an asset? (I’ve been advised “yes”) – 3 for 3 Rae, you’ve done your homework well!
4. If Don were to take out a loan, or maybe access the redraw facility on his home-loan account, to pay for his holiday (or for anything else), is the bank loan regarded as a new asset? (I’ve done this and will be redrawing from my super to reduce my mortgage. I’ve been advised they’re only interested in the balances of super, bank accounts and any new assets) – Please know that as there are multiple ways people could have this kind of arrangement it can differ with Centrelink. Specifically as you have stated, (having a loan and/or redraw balance) does not impact anything because the loan does not come into assessment in any way so whether you have more or less owing is of no consequence. Yes you can use your super to pay off a home loan to legitimately reduce your assessable assets.
Thanks so much Rae and Steven for addressing my questions! As I said, I am still learning the ropes and like Rae I have found it sometimes daunting dealing with Centrelink. The staff are generally lovely but the system is cumbersome and the rules complex.