The inventor of weather forecasting, Admiral Robert FitzRoy, was motivated by the desire to stop shipwrecks off the coast of Britain. He established the first weather bureau in 1854….but was mocked for his forecasts and eventually took his own life in the 1860s. Today, we’re all grateful for the improvements in weather predictions and rarely go a day without looking at a forecast.
In our view, retirees need to avoid their own “shipwrecks” on the shoals of retirement. They need forecasts to work out how much they can spend. And they need to get them throughout retirement so they can make adjustments as things change.
Forecasting retirement is pretty tricky. How much can I spend? And how long will my money last? They’re the two most common questions.
So what is the answer?
But the answers depend on a number of uncertain factors: How long will I live? What will I earn on my investments? And how much will the Age Pension account for? To which most people would throw up their hands and say “who knows?”
Without good forecasts available to them, most Australian retirees end up dying with significant assets still intact – and not because they planned to leave it to their heirs (although that’s important to a minority). Instead, they underspent because they just didn’t know they could afford to spend more. That was a major finding of the Retirement Income Review just concluded by the Federal Government.
There are some basic tools out there to help. ASIC’s MoneySmart calculator lets you calculate retirement income. But a big problem with it is that it assumes a certain rate of return on investments that’s earned every year. Well, financial markets just don’t work like that; they go up and down. You need more sophisticated tools that can show you the impact of uncertain market outlooks. Show what might happen, instead of pretending we know what will happen.
Our Plans
Retirement Essentials is working on the next generation of tools to help you understand how your retirement might look depending on what happens. They’ll help you understand:
- How much you can spend?
- How long it needs to last? Generally the longer you plan to live the less you can afford to spend each year.
- How your retirement spending might vary based on good and bad investment markets. Not surprisingly, if you get lucky with good markets, you can spend more or it will last longer. But you can also work out how to prepare for not being so lucky.
- Where your money is going to come from. How will the Age Pension help you as you get older. You might start out retirement with a small part pension, but as you spend down your assets, it’s likely that your Age Pension will rise as you get older.
So what retirement forecasting tools would you find useful? Let us know by commenting below.
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 any 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.
I would like to accurately calculate my super end date
So many unknowns mean that many retirees keep funds in reserve so I’m not sure how useful your calculators will be. Issues are
-changes in tax (franking credits changes now abandoned by Labor but still possible to tax SMSF retirement income)
-public hospital waiting times necessitate private health cover
-aged/alzheimers care home deposits
-cost of home care (govt subsidy?}
-cost of accomodation. We have been to retirement villages/over55s and they sell on the basis of a total replacement of your current lifestyle/friendships but in Sydney they are miles away from our current friends and transport and we are more likely to stay put at home and pay for care (health, garden, maintenance, etc)
I don’t see how you can address al these issues in one calculator
Yes, forecasting is challenging due to the uncertainties. But, it’s the uncertainties that make it important to forecast. We each need a sense of how much we can afford to spend in retirement? How long our money will last. If circumstances, like government policy, change then the forecast can be updated. Without a forecast we’re each flying blind.
I’d like a forecasting tool that has the capacity to explore variable such as how long I might live and various investment scenarios
Thank you
The way i see it if you spend what you need now and allow for your super and savings etc to last till age 80 you should be able to live on the pension at that age as you won’t be moving around as much and life will be cheaper and slower.
We use a simple arrangement and that is to have a 12 months supply of cash and a range of investments to produce income. We spend no more than 5% of the income generated. In some years the investments produce more than 5% – some industrial shares do very well and that is re invested for the possible lean times ahead. Worked well so far, been retired since 2005, and in most cases the amount invested has increased so don’t see why it won’t last our lifetimes whatever that may be.
Today no one can forecast the weather for January 7 2026. Paying someone to guess it and tell you what you would like to hear, might as well talk to the guy in the mirror.
An Australian calculator would be a great idea.
I’ve seen a few that are USA based, but the retirement and tax system over there is too different to Australia to be of any use.
Yes, Australia really is different. The Age Pension makes forecasting in Australia particularly challenging because of the means testing. In the US, you know what your social security is going to be. Here, the pension depends on how much your income and assets are.
My husband and I worked in Australia for 25 years up to 2006 when we moved to Spain. Both of us are now retired and have applied for the Australian pension. However it appears from the calculator that we are not entitled to it in spite of having contributed to social security for 25 years.
I inherited money which I have invested in property for my children but this is not providing any income. Please advise if this needs to be included in the calculation.
The residency requirements for Age Pension eligibility are complicated — especially when living overseas. (Are you Australian citizens?) And only Centrelink can tell you for sure whether you’ll qualify. You can contact Centrelink from Spain on 900 951 547. Investment properties can also pose complex problems.