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Budgeting for retirement: 5 things to consider

Published 21 January 2024

Budgeting for retirement: 5 things to consider

Budgeting for retirement is an essential part of ensuring a secure financial future for yourself and your loved ones. Australia has a comprehensive superannuation system which has helped retirees maintain their standard of living. However, it may not be enough for all your financial needs in retirement.

The earlier you start planning for retirement, the better off you will be. This is because when you plan early, you have more time to save, and your investments have a longer period to grow.

On the other hand, if you start planning for retirement later in life, you may have to make larger contributions or take on more risk to catch up. It is never too late to start planning for retirement, but the earlier you begin, the more secure your financial future will be.

A financial advisor can help you determine your risk appetite and create a retirement plan which aligns with your goals and comfort level.

5 Things to Consider When Planning Retirement

1. Your Current and Future Expenses

It is essential to have a clear understanding of your current and future expenses when planning for retirement. Your retirement goals will determine how much you need to save and budget accordingly. If your goal is to travel the world and enjoy the finer things in life, you may need more money than someone who wants a simple retirement.

According to ASFA, single retirees aged 65-84 years of age who own their own home, require a minimum of approximately $50,000 per annum for a comfortable retirement (for couples it’s around $71,000).

When creating a financial plan, factoring in inflation, can assist in your assessment of your retirement budget. 

2. Superannuation

As you approach retirement age, you'll need to start thinking about accessing your superannuation and how you'll use it to fund your retirement. We recommend that you meet with a financial adviser to look at what options you might choose with your super. Are you planning to create an Income Stream, or do you plan to access all or some of your funds as a Lump Sum?

3. Government Benefits

In addition to your superannuation, you may also be eligible for certain government benefits, such as the Age Pension or the Commonwealth Seniors Health Card. These benefits are means-tested and will be based on your income and assets.

4. Healthcare

As you age, your healthcare needs may increase, which means you'll need to budget for healthcare expenses in retirement. This includes things like private health insurance, dental expenses, and aged care services. The cost of healthcare can vary depending on your health needs and the type of care you require, so it's important to consider this when assessing your retirement budget. 

5. Housing

Housing is a big expense for most people, and this doesn't change in retirement. In fact, you may find your housing costs actually increase as you age, especially if you require specialised care or modifications to your home. When budgeting for retirement, it's important to consider your housing options and any associated costs, such as mortgage payments, rates, insurance, repairs and maintenance.

Don't Rely on Your Retirement Plan Alone

While having a solid retirement plan is crucial, it is also essential not to rely solely on it for your financial security. As we have seen in recent times, unexpected events such as a pandemic or economic recession can greatly impact the value of our investments and savings.

It is important to have an emergency fund and explore other opportunities for income, such as part-time work or starting a small business. By diversifying your sources of income, you can have added financial stability during retirement and be better prepared for any unforeseen circumstances.

With proper planning, expert financial advice, a realistic risk assessment, and careful consideration of market fluctuations, you can ensure a financially secure future for yourself and your loved ones.

Plan well, plan early, and always be prepared. Your future self will thank you!