Retirement Isn't a Number: It's a Lifestyle You Need to Fund
One of the most common questions in financial planning is also one of the hardest to answer - how much do I need to retire?
$1 million? $2 million? $5 million?
The problem is that none of those numbers mean much without understanding what you actually want retirement to look like.
Someone who owns their home, travels once a year and spends $80,000 annually has a very different retirement to someone who wants regular overseas travel, a holiday home, new cars every few years and the ability to help their children financially.
Retirement planning shouldn't start with a magic number. It should start with the life you want to fund.
Start With the Lifestyle, Then Work Backwards
Before looking at super balances or investment portfolios, a good retirement plan should answer some fairly practical questions.
When would you like to stop working? Do you actually want to stop completely, or gradually reduce your hours? How much are you spending today and which of those expenses are likely to continue? What do you want to do with the extra time you suddenly have?
For many of our clients, retirement isn't necessarily about spending less. Particularly in the early years, having more free time can mean spending more on travel, hobbies, family and experiences.
That means the starting point isn't simply applying a generic percentage to your current salary. It is building a realistic picture of what your retirement might actually cost.
Your Retirement Wealth Is More Than Your Super Balance
One of the traps with retirement modelling is assuming someone will spend exactly the same amount every year for the rest of their life.
Real life doesn't generally work that way.
The early years of retirement can be some of the most expensive. You're healthy, have more time and finally have the freedom to do the things work may have prevented you from doing.
That could mean:
More frequent overseas travel
Renovating or upgrading the family home
Buying a caravan, boat or holiday property
Helping children with property or education
Spending more on hobbies and experiences
Later in retirement, some of that discretionary spending may naturally reduce, while healthcare and other costs can become more significant.
A useful retirement plan should allow for those different stages rather than assuming retirement is one flat annual expense multiplied by life expectancy.
Your Retirement Wealth Is More Than Your Super Balance
Superannuation will understandably form a significant part of retirement planning for many Australians, but for established professionals, executives and business owners it is often only one part of the picture.
Retirement wealth might be spread across superannuation, personal investments, investment properties, cash, trusts and eventually the proceeds from selling a business.
This creates both opportunities and decisions.
Which assets should provide income first? Should debt be repaid before retirement? Should assets be sold or retained? Is there an opportunity to build more wealth within super before retiring? How much liquidity should sit outside super?
Once retirement gets closer, these decisions become increasingly interconnected.
The goal is not simply to accumulate the biggest possible super balance. It is to structure your overall financial position so that the different assets work together to provide the lifestyle and flexibility you want.
The Final 10 Years Can Make an Enormous Difference
People sometimes assume that if they haven't focused heavily on retirement planning by their 40s or early 50s, they've left it too late.
That isn't necessarily the case.
For many high-income households, the final decade of their working life can also be the period where they have the greatest capacity to build wealth.
Income may be approaching its peak, children may be becoming less financially dependent, the mortgage may be significantly lower and there may finally be meaningful surplus cash flow available.
That can create opportunities to:
Increase superannuation contributions
Build investments outside super
Reduce non-deductible debt
Review how investments are structured
Position business and investment assets for eventual retirement
Take advantage of the remaining years of employment or business income
Small improvements made early can compound over decades, but substantial progress can still be made later when there is a clear strategy and the financial capacity to execute it.
Knowing Your Number Still Matters
None of this means the retirement number isn't important. It absolutely is.
The difference is that the number should be the output of the planning process, not the starting point.
Once you understand the lifestyle you want, when you want to retire and the major expenses you're likely to face, you can start modelling how much capital may be required to support it.
From there, you can compare that against where you're currently heading.
If you're already on track, that's useful to know. It might mean you don't need to take as much investment risk, can retire earlier, spend more today or start helping your children sooner.
If there is a gap, you have something tangible to work towards
A Retirement Plan Should Answer "What If?"
A retirement projection based on everything going perfectly isn't particularly useful.
Investment markets will fall at some point. Inflation will change. Tax and superannuation rules will evolve. You might retire earlier than expected, sell a business for less than anticipated or decide you want to spend considerably more in the first five years of retirement.
This is where modelling different scenarios becomes valuable.
What happens if you retire at 60 instead of 65? What if investment returns are lower? What if you spend an additional $50,000 a year travelling for the first decade? What if you give each of your children $200,000 towards a home?
These are much more useful questions than simply asking whether you have enough super.
They allow you to understand the trade-offs while you still have time to do something about them.
The Value of Planning Before Retirement
Some of the most valuable retirement planning happens well before someone actually retires.
That's because the years leading into retirement are when you still have income coming in and therefore the greatest ability to make changes.
A financial adviser can bring together your expected spending, superannuation, investments, property, debt, business interests and tax position to determine whether everything is moving towards the same objective.
It also changes the conversation from simply accumulating more.
Sometimes the modelling shows that a client needs to save or invest more. Other times it shows they are already comfortably on track and have more flexibility than they realised.
That might mean retiring earlier, working less, travelling more or helping family while they're still around to see the benefit.
For many people, that clarity is just as valuable as improving the investment return.
Key takeaway
Retirement planning isn't about reaching an arbitrary super balance.
It's about understanding what you want your life to look like, working out what that lifestyle is likely to cost and then building a financial position capable of supporting it.
The earlier you understand where you're heading, the more options you generally have to make adjustments along the way.
And ultimately, that's what a good retirement plan should give you.
Not just a number to aim for, but confidence around what that number actually allows you to do.
Oakmont Financial Group is a specialist firm dedicated to providing Financial Advice that helps you feel confident about your future. If you would like to discuss your financial goals for the year ahead and beyond, you can book a meeting at a time that suits you (including outside standard hours) via our online calendar.
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The information contained on this website and in this blog-post is general in nature and does not take into account your personal situation or circumstance. It is recommended that you consider and use the information provided responsibly, and where appropriate, seek professional advice from a financial adviser.
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