Baby Boomers are often labelled as big spending optimists who will worry about tomorrow when it comes, however, a recent study into retirement adequacy which analysed data from 60,000 SMSF’s across Australia shows that based on the average balance of these funds ($850,000) a 65 year old couple can receive an income of around $60,000 for their lifetime.
The Association of Superannuation Funds of Australia (ASFA) benchmarks the annual budget required for a comfortable lifestyle as approximately $58,000. The other rule often used is that you will require 65% of your pre- retirement income or that an average balance of $1,000,000 will provide a comfortable retirement.
Generally those with an established SMSF will have higher balances therefore it is likely that underfunding may not be an issue. However in an area that is complex and constantly changing they may not be utilising their SMSF structure effectively to maximise the longevity of their funds.
While many Baby Boomers are boosting their retirement savings by working longer and will be the recipients of the vast transfer of wealth from the previous generation there are also a good number of those that leave planning to the last minute and have no idea of their current income and expenditure or what they will need to live on in retirement.
Those that will be underfunded are people that have not planned their retirement, have only relied on SG contributions and retire early thinking that the age pension will be there fall back option.
The most important steps are:
• Think about your retirement, years before you actually retire
• Know how much you currently spend on day to day living expenses and what you will need to live on in retirement.
• Set some goals
• Plan for large expenditures and the dream holiday.
• Look at strategies to achieve what you want.
• Seek advice from a qualified professional
There is no real magical sum of money for retirement, it comes down to what lifestyle you have now and what you want your retirement to look like. The biggest key to not being underfunded is to plan and set goals as early as you can.