Super, Retiring Income and Pensions

[shakey55]

This thread has made very interesting reading.

I'm nearing 59 and retired in June, 2012, after 32 years in a NSW state gov job. I was in a defined benefit scheme, but opted for the lump sum payout, some say pension is better but everyone's circumstances are different.

The payout was very good, sat down with a financial advisor who set me up with a thing called an AMP flexible super retirement account of which I draw a small fortnightly wage. Although I've been on it for a little over 12 months, there is a lot more money in there than I started with.

I'm only outlining this as I believe the best thing to do is to find trustworthy financial advisor and go with it. Yes I pay fees and he earns a dollar, but if I need to spend a dollar to make a dollar then that is what needs to be done to ensure expert advice, and not have the added worry of trying to do it myself.

Wife is still working casual hours and will also retire I next couple of years. We will be debt free with some toys and able to enjoy retirement travelling.

I'll never forget what I was told at a retirement seminar -

YOUR AIM AT AGE SIXTY-FIVE IS TO BE ABLE TO GET AT LEAST $1 AGED PENSION, SO YOU CAN GET THE FEW BENEFITS THAT GO WITH THE PENSION (pension cards etc).

What I am trying to say is, put your money into super, investment properties etc, just make sure you do something so come retirement you have plenty to set yourself up for retirement.

My parents didn't, now live (just) on the aged pension.   

Good luck to all and happy travelling.


'shakey'

[Mrs smith]

Utter BS you actually have to sell the property then to make money or it has just cost you money. I personally think property is a mugs game as you have all these people thinking they are millionares but then eat 2 min noodles cause yes they have property but none of it is liquid and the rent is just covering costs

Investing in anything costs something, whats wrong with selling for a profit and down sizing later in life or doing the same again ?
I'd rather spend money on my own home and enjoy the comforts while living in it. We had 3 properties at one stage and I'm glad there gone, they all returned a profit better than super. 15k in reno's on one returned 50K profit in 2 years while living in it and I didn't have to eat 2 minute noodles unless I chose to, I do like the beef though.

[Nomad]

Utter BS you actually have to sell the property then to make money or it has just cost you money. I personally think property is a mugs game as you have all these people thinking they are millionares but then eat 2 min noodles cause yes they have property but none of it is liquid and the rent is just covering costs

Then your not doing it correctly and are getting poor advice............seek a financial planner and divest whats not working.

[Aaron Schubert]

Then your not doing it correctly and are getting poor advice............seek a financial planner and divest whats not working.

Yep, you don't have to sell the property to get cash flow from it. Equity mate!

Aaron

[RobM]

Nobody seems willing to put even "ball park" numbers up. Like I said in an earlier post, I'm aiming at 1.8 - 2M by 60, ( just under 2 years, and then out) but I might be very wrong.
There might be people out there living happily on half that, ( in which case I've lost a couple of years of quality retirement as suggested in an earlier post)  or it might take a lot more than that.

Everyone is willing to offer "strategies" on how to make money for retirement, but the big question is, how much do I need to retire.
You could argue for ever and a day about property/shares etc. I'm sure most people have good and bad stories about both.

I reckon there are plenty of people following this thread who have retired and could contribute by saying something like " we retired two years ago with about $??? in liquid assets and it suits us, we get to go camping, etc. etc." .

Anybody thinking about retiring in the next couple of years would have some sort of number in their heads, so how about sharing ?

Ok, I've had my little rant (that's what happens when you  drink red wine while cooking dinner).

There has been a lot of good advice in this thread and I'd like to add my "two bobs" worth.
You don't have to only think about how you invest your money, but also how you spend it. Don't buy anything on credit that isn't essential. eg. Instead of buying a 60" LED smart TV on your credit card, save up enough for a 32". The $1000 that you don't spend on the 60" will save you 5 times that if you put it toward your home loan.
Not buying toys on credit and not needing the latest and greatest has worked for us ( wife and I ), and we have only had average wages.

Cheers RobM

[Nomad]

I personally think thats horses for coarses Rob and the exact reason why no one has stated the "figure" they are happy retiring with.
Work it out backward from what you need to live on. If I retired today I would need to think of things like our house mortgage but the next guy might not. The numbers are individual and private but the yields are common relative to your own risk. 

[Aaron Schubert]

For those who have a mortgage and really want to make a difference, an offset account and living off a credit card that is paid off monthly (so you pay no interest on it) will reduce your repayments by tens of thousands of dollars over 30 years.

If you have a separate savings account and a home loan, you are throwing money out the window

Aaron

[RobM]

For those who have a mortgage and really want to make a difference, an offset account

Yep. Both my kids now have offset accounts, and they are also a good place to stash a bit of cash. While it isn't earning anything while in the account it is helping the kids by reducing their mortgage interest. It is still accessible (if the kids will return it) and I believe if gifted for 5 years it won't be used in assessing a part pension. ( correct me if I'm wrong). If you never need it back then you're lucky and so are the kids.
 Edit: I don't think all offset accounts are equal. I know that with QCCU 100% of the money in the account is used to offset the loan but I have been told that not all are that generous.

[UIZ733]

To answer your 'what figure' question, we think we will survive on approx. $55000 pa. There is only one way to find out! There are only two times, NOW and TOO LATE.
I am basing my figures on information like this;
http://www.superguide.com.au/how-super-works/a-comfortable-retirement-how-much-super-is-enough
And this;
Calculating a Comfortable Retirement

To help guide you to your number, financial firms have devised income and actuarial models that come up with a target multiple of your final year’s salary. Benefits consultant Aon Hewitt says that by age 65 an average full-career worker needs to have banked 11 times annual pay. That means a household earning $75,000 a year would need to have saved $825,000. Work to age 67 and the multiple drops to 9.4 ($705,000); retire at age 62 and the multiple rises to 13.5 ($1 million).

The fund company T. Rowe Price advises a multiple of 12 times final pay, while Fidelity calculates that a multiple of eight times pay will do the trick. All the firms use slightly different assumptions. But you can see that they are in the same ballpark and, more importantly, that it’s a big park.

Looking at it another way, BTN Research estimates that, assuming 5% average annual investment returns, for every $1,000 of monthly income you want over a 30-year retirement, you need $269,000 in the bank. Let’s consider that same household making $75,000 a year. To replace the commonly recommended 80% of income in retirement — or $60,000 in this case — the household would need $5,000 a month. In this calculation, this household’s number is $1.35 million, or 18 times final pay. A higher investment return would bring the numbers down.

Finally, there is the approach that Dallas Salisbury, president of the Employee Benefit Research Institute offers: You need 33 times what you expect to spend in your first year of retirement—after subtracting Social Security benefits. Let’s take that same household, which spends every penny of its $60,000 income in retirement. Say this household collects $20,000 a year in Social Security. That leaves it spending $40,000 from other sources. So this household still needs a nest egg of $1.32 million, or just shy of 18 times final pay.

Don’t be discouraged. These are just estimates. A household with two good traditional pensions plus Social Security, and zero savings, might be in fine shape while a household with $1 million in the bank and no guaranteed lifetime income ends up struggling. That’s why your spending–not your savings–may be the most important part of the equation.

Basing your number on final pay has another flaw. What if you are frugal and live on far less than you earn? The household that earns $75,000 a year but saves 20% and thus spends only $60,000 need not squirrel away as much as a household earning $60,000 a year but which through credit spends $75,000. The latter household, by the way, is headed for real trouble — and, sadly, this situation is not uncommon.

Read more: Retirement: How Much Do You Need to Retire?
http://business.time.com/2013/02/11/sizing-up-the-big-question-how-much-money-do-you-need-to-retire/

[KeithB]

Danny,
It turns out that for most of us, whatever we have in super won't be enough. But here's my two bob's worth.

1. Remember that super is not an investment. It is just a tax effective vehicle in which to hold investments. You can have a self managed fund, which usually needs a balance of at least $250K to be cost effective, or you can go into an industry fund or a privately managed fund. The industry funds tend to have the lowest fees, but are still more expensive than an SMF for balances over $500K. It costs about $2,500 to set up a self managed super fund cheaply and two or three times that amount if you want to structure it to borrow to invest in property within super. Fees are about $2,000 a year to run it.

2. Pick the right super fund based on fees and historical returns. For a small charge, you can get onto the Super Ratings website http://www.superratings.com.au/ and see comparative figures for all of the funds. In particular, look at how they went during the GFC, when some of the higher flying funds lost their pants. As balance grows, you can roll it over into your own SMF is you want to.

3. Work out your risk profile. Right now, if the market dropped by 20% it wouldn't kill you. If the same thing happened at age 70, it would be a disaster.  So you tend to take on lower risk investments with lower returns, more cash and bonds, as you get older. High returns almost always attract higher risk.

4. The "Balanced" option in most super funds is not balanced at all, at they all seem to have about 70% of their dough in shares. But, at your age, that would be fine.

5. I will retire next year at age 65 with about $1.2M in super plus a house that we own. With a wife 12 years younger than me and two teenage kids, that's not going to be enough. So the plan is to downsize our house in ten years time to pump up the balance.

6. It all depends on what sort of lifestyle you want to have in retirement and how your lifestyle and health care costs change as you get older. That's why no one can nominate a number.

7. I think a grand or two spent on a good independent financial planner is not money wasted and you are smart to be thinking about all this stuff at this time of life.

[DannyG]

Danny,
It turns out that for most of us, whatever we have in super won't be enough. But here's my two bob's worth.

1. Remember that super is not an investment. It is just a tax effective vehicle in which to hold investments. You can have a self managed fund, which usually needs a balance of at least $250K to be cost effective, or you can go into an industry fund or a privately managed fund. The industry funds tend to have the lowest fees, but are still more expensive than an SMF for balances over $500K. It costs about $2,500 to set up a self managed super fund cheaply and two or three times that amount if you want to structure it to borrow to invest in property within super. Fees are about $2,000 a year to run it.

2. Pick the right super fund based on fees and historical returns. For a small charge, you can get onto the Super Ratings website http://www.superratings.com.au/ and see comparative figures for all of the funds. In particular, look at how they went during the GFC, when some of the higher flying funds lost their pants. As balance grows, you can roll it over into your own SMF is you want to.

3. Work out your risk profile. Right now, if the market dropped by 20% it wouldn't kill you. If the same thing happened at age 70, it would be a disaster.  So you tend to take on lower risk investments with lower returns, more cash and bonds, as you get older. High returns almost always attract higher risk.

4. The "Balanced" option in most super funds is not balanced at all, at they all seem to have about 70% of their dough in shares. But, at your age, that would be fine.

5. I will retire next year at age 65 with about $1.2M in super plus a house that we own. With a wife 12 years younger than me and two teenage kids, that's not going to be enough. So the plan is to downsize our house in ten years time to pump up the balance.

6. It all depends on what sort of lifestyle you want to have in retirement and how your lifestyle and health care costs change as you get older. That's why no one can nominate a number.

7. I think a grand or two spent on a good independent financial planner is not money wasted and you are smart to be thinking about all this stuff at this time of life.

Thanks Keith, Can I be rude enough to ask is that figure not enough because your wife is 12 years younger and you have the expense of teenage kids? Or is it simply your lifestyle choice needs more funding than your super is able to provide?

For the record I am in an industry fund that has me in a 'balanced' plan, we just went from a defined benefit to an accumulative fund.

[Aaron Schubert]

Yep. Both my kids now have offset accounts, and they are also a good place to stash a bit of cash. While it isn't earning anything while in the account it is helping the kids by reducing their mortgage interest. It is still accessible (if the kids will return it) and I believe if gifted for 5 years it won't be used in assessing a part pension. ( correct me if I'm wrong). If you never need it back then you're lucky and so are the kids.
 Edit: I don't think all offset accounts are equal. I know that with QCCU 100% of the money in the account is used to offset the loan but I have been told that not all are that generous.

Most offset accounts are 100% these days. Some charge a fee to have access to them though. Another tip; I bet if you all walked into your banks and asked for a better interest rate, 90% of you would get it. We did it the other day, and as a result are now able to save a further $800 per year. That's a lot of money over 30 years!

Aaron

[Homer_Jay]

Just be careful which financial planner you hand over your hard earned to!

I work in finance (home loans) and some of the most financially unorganised people we deal with are FP's and accountants. I shake my head when I think these people are handing out advice to others on how to invest their money, when they are up the proverbial creek themselves.

[RebsWA]

Nobody seems willing to put even "ball park" numbers up. Like I said in an earlier post, I'm aiming at 1.8 - 2M by 60, ( just under 2 years, and then out) but I might be very wrong.
There might be people out there living happily on half that, ( in which case I've lost a couple of years of quality retirement as suggested in an earlier post)  or it might take a lot more than that.

Everyone is willing to offer "strategies" on how to make money for retirement, but the big question is, how much do I need to retire.
You could argue for ever and a day about property/shares etc. I'm sure most people have good and bad stories about both.

I reckon there are plenty of people following this thread who have retired and could contribute by saying something like " we retired two years ago with about $??? in liquid assets and it suits us, we get to go camping, etc. etc." .

Anybody thinking about retiring in the next couple of years would have some sort of number in their heads, so how about sharing ?

Ok, I've had my little rant (that's what happens when you  drink red wine while cooking dinner).

There has been a lot of good advice in this thread and I'd like to add my "two bobs" worth.
You don't have to only think about how you invest your money, but also how you spend it. Don't buy anything on credit that isn't essential. eg. Instead of buying a 60" LED smart TV on your credit card, save up enough for a 32". The $1000 that you don't spend on the 60" will save you 5 times that if you put it toward your home loan.
Not buying toys on credit and not needing the latest and greatest has worked for us ( wife and I ), and we have only had average wages.

Cheers RobM

RobM, IMO there are too many variables involved to post up $ amounts for a comfortable retirement.
Suffice to say that I have been retired for over 6 years (second time) and had less in super and cash than you are aiming for at retirement yet still enjoy a great lifestyle.
For the first year or so of retirement I really had trouble coming to terms with no money coming in after 45 years of a regular income.
My father said to stop worrying about it and enjoy life as we were a lot better off than they were on the pension, and you never know when your number is up.
So I have since conditioned myself to not worry about it and enjoy life, and that's the way it is now.
Since retiring we have toured parts of Europe and the British Isles, every year go on 6 week fishing holiday staying in a caravan park, have flown to Qld for the past 3 years for R&R, get out in the camper/caravan when we can, have bought and sold new and used cars and 4wd's, have bought and sold new and used campers and caravans (we maintain 2 caravans, 2 vehicles and a boat), have done some renovations on our property, don't skimp on our favourite beverages, eat like kings and have survived the GFC.
The above is not a brag its just to give an idea of what we get up to.
I got a small inheritance when my folks passed on and with that we still have about 3/4 of what we started out with.
We are not from financial backgrounds so have a financial advisor and although not scared to spend up still try to be aware the money pot. 
We are certainly not going to sit around while we are at our healthiest for this time in life and not enjoy the many pleasures retirement offers.
What the hell is the good of amassing a fortune if you get too old or unfit to enjoy it! Your kids will love you more though.
How many retirees do you run into in life who (with hindsight) wished they had done it earlier.
Anyway, in our case we were debit free several years before retirement and had all the "toys" we wanted, so had a good idea of the cost of living.
Being a few years older than my wife things were structured some years back in preparation for my turning 65 when I started getting the full age pension.
By the time I am in the late seventies I might have to tone things down abit but I will worry about that then.
Any regrets?   Not a one!

[MarkVS]

There is some interesting data around about what the average amount people have in super when they retire..and it is substantially lower than a lot of the figures in this thread.
" the average super balance at retirement was $192,000 for men and $112,000 for women." SMH Feb 2013.....The Australian quotes similar numbers.

I figure there are a lot of people out there with a lot less super than me (when I retire)..and all of the retired people I know are very happy and living comfortably and really not missing out on things...so unless everyone I know has as much super as I do, then my expectations of what 'really' is required or what I 'really' need might be a bit over stated.

I also think that a lot of what I think I need now, I won't need when I retire..2nd car, work expenses (to and from work, work clothes, lunches etc), daughters expenses, dinners out etc etc.
And as I get older, I will do 'less'....and hence need 'less'.


MarkVS

[RobM]

Well there has been a lot of good posts since last night. All valuable stuff. I never expected for anyone to be able to tell me how much I need to retire but the sort of info that has been shared is the sort of info that can be evaluated and applied to my situation. What I'm getting from the more recent posts is I think I'm on the right track.
RebsWA, every one who I speak to who is retired wishes they had done it earlier. Thankyou for giving me an insight into your lifestyle, and qualifying it with the "ball park" figure. I would be more than content with a similar lifestyle. In fact even a more modest one, just don't take my shed  or my  away  .

[RebsWA]

Thankyou for giving me an insight into your lifestyle, and qualifying it with the "ball park" figure. I would be more than content with a similar lifestyle. In fact even a more modest one, just don't take my shed  or my  away  .

Spot on! I have a large farm style shed/workshop that I have just extended. It houses all the toys and my home brew activities.
Have been known to sample the odd brew or ten up there with a mate or two from time to time.
I named the shed "MODERATION" and painted that over the workshop door.
I occasionally have to explain that for many years it was suggested that I drink in moderation, so for the last 10 years or so I have complied.
Seriously tho, in retirement each partner needs a little private space every now and then. The house for her and the shed is the perfect getaway for him.

[bluejay]

When i win the $70,000,000.00 this tuesday  i will retire in comfort trade my home made soft floor on a $15000 imported trailer and travel australia for a couple of months then retire to fraser island for a year then travel the world

[Terry W4]

I also believe that in the near future the primary residence will not be part of the means test for a pension so downsizing may work in your favour from that respect as well

The primary residence has never been an asset used to calculate pension rights.

[GeoffA]

The primary residence has never been an asset used to calculate pension rights.

That'll change. I also believe that super assets will eventually be hit with a hefty death duty. Just my view.....

[speewa158]

Death duty ,,,, Cant afford to retire ,, live or die   so where dose that leave me now


 ls it too early for    all this thinking at this hour of the day 

[Marschy]

The primary residence has never been an asset used to calculate pension rights.

But it can be sold out from under you're feet if you require palliative care and your house is your only asset. Happened to my wife's grand mother. She was a crafty old duck. When she was diagnosed with cancer, she immediately signed her house title over to her grand chilren so it couldn't be sold to pay for what turned out to be 6 months of palliative care.

[GeoffA]

But it can be sold out from under you're feet if you require palliative care and your house is your only asset. Happened to my wife's grand mother. She was a crafty old duck. When she was diagnosed with cancer, she immediately signed her house title over to her grand chilren so it couldn't be sold to pay for what turned out to be 6 months of palliative care.

One very switched-on lady......

[KeithB]

Thanks Keith, Can I be rude enough to ask is that figure not enough because your wife is 12 years younger and you have the expense of teenage kids? Or is it simply your lifestyle choice needs more funding than your super is able to provide?

For the record I am in an industry fund that has me in a 'balanced' plan, we just went from a defined benefit to an accumulative fund.
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Regards Danny

www.tassiecampers.com

Danny,
It's all of the above. All the women on my wife's side of the family have lived into their late nineties and I expect my wife will as well. So we will need to provide for her for some 25 years after I kick the bucket.
The plan is to live reasonably well, a least by our own standards, for ten tears or so and then progressively cut back on expenditure.
I've told the love of my life that, after retirement, she won't be having to take in washing. But, by God, she won't be sending any out either.

[DannyG]

Sooooooo, I started this thread almost 3 years ago and the old super topic has come up again at my place!!

My 'employers super fund' has recently been bought out by a bank and is now a retail fund.

I have been looking at the new fee's and charges as best as I can understand and at the moment they appear to be quite reasonable still. In fact I think they are slightly better than an industry fund I am looking at (australian super) and their life insurance and permanent disability premiums are half the cost of the industry fund.

So I am struggling to find a reason to jump ship. 99% of my work colleagues all jumped over to media super (media super came to our work place and had a big union push towards the labour party at election time as they do) but when comparing the returns, my existing fund has outperformed media super and is on par with australian super, so i am again struggling to find a valid reason to step out of the retail fund and into the industry fund.

Am I missing something here??

All the 'experts' at work are telling me I am mad to stay with the retail fund and I should be going into an industry fund. They have about as much knowledge on the subject as me though, which is pretty close to zero..............so any financial people out there able to point me in the right direction???

I hate doing my own research on things I know very little about, but after spending a lot of time doing my best to look at all the costs and returns I just cant find the major differences with the funds I am comparing. My super would be tiny to most of the rich people on here, but to me it is looking substantial enough to not want to make a bad move at this stage in my life.

I am hesitant to ask and/or pay a real expert as they are generally biased towards a commission paying client in my experience!