Am I on Track For Retirement? Here’s How To Find Out.
The biggest question we get from new clients at Guidance Financial Services is simple:
Am I on track to retire?
I hear it from people who are still 20 years away from retirement and from people who are only a few months out. Most know roughly how much they have in super, but they do not know what that balance may allow them to do.
Could you retire at 60? Could you reduce your hours before then? Would your money last if you spent more during the early years of retirement? Or could you already have more flexibility than you realise?
Usually, people are not looking for a generic super target. They want to understand what their own position means for the life they want to live.
Your super balance matters, but it is only one part of the answer. In this episode of Financial Autonomy, I explain how I work out whether someone is on track for retirement. You can listen above.
How do I know if I am on track to retire?
You are on track when your expected super, investments and other income are likely to support the retirement you want for the rest of your life.
To work that out, you need to understand:
When you would like work to become optional
How much you are likely to spend
What your super could be worth by then
How much income your assets may provide
Whether that income is likely to last
A retirement calculator can give you a rough estimate. A useful retirement plan goes further by bringing those pieces together and testing how they work in your circumstances.
How much money will I need in retirement?
There is no single retirement figure that works for everyone.
Someone who owns their home, has modest expenses and plans to stay close to family will need a different amount from someone who wants frequent overseas travel or expects to retire with a mortgage.
I usually suggest starting with what you spend now, then thinking about what may change. Work-related expenses may fall, while travel, hobbies and leisure spending may increase.
When we model retirement for clients, we often allow for higher spending during the first five to ten years. Those are generally the years when people are healthiest and most able to enjoy the plans they have been saving for.
The aim is to build a realistic picture of your retirement, rather than squeeze your life into someone else’s idea of a comfortable budget.
How much super should someone my age have?
This is a common question, but broad super benchmarks can only tell you so much.
A large balance may look reassuring, yet the outcome still depends on your retirement age, spending, debts, other assets, investment mix and possible Age Pension eligibility.
Two people with the same amount in super can have very different retirement outcomes.
One may own their home, have relatively low expenses and receive some Age Pension support later. The other may retire earlier, still have debt and want a much higher level of spending.
So, instead of asking how much super you should have try asking:
What income could my assets provide, and is that likely to support the retirement I want?
That is the question I would rather help a client answer.
What age can I afford to retire?
Many people come to see us without a firm retirement date. They simply want to know when work could become optional.
That might mean finishing work completely. It could also mean moving to three days a week, changing careers or taking a less demanding role without worrying about the financial impact.
This is one of the most valuable things retirement modelling can reveal.
You may discover that working another year or two would make a meaningful difference. You may also find that you have more flexibility than you thought.
Being on track is about more than avoiding a shortfall. It can help you make better use of the position you have already built.
Are online retirement calculators enough?
Online retirement calculators are a useful place to start. They can give you a broad estimate based on your current super, contributions, retirement age and expected spending.
The result still depends heavily on the assumptions used for investment returns, inflation, fees and spending.
Most calculators also struggle to reflect the way real life works.
You may want to move to part-time work, spend more in the first decade of retirement, downsize later or include other income and assets in the plan.
A calculator may tell you whether you appear to be in the ballpark. It is less useful when you want to compare choices and understand which decisions will have the greatest effect.
What if I do not have enough super?
Finding a projected gap does not mean retirement is off the table. It means the current version of the plan may need to change.
The earlier you find that out, the more options you are likely to have.
Depending on your circumstances, we may test the effect of:
Working for another year or two
Increasing your super contributions
Adjusting your planned retirement spending
Moving to part-time work before fully retiring
Downsizing your home
Reviewing how your super is invested
There is rarely one magic answer. Often, it is a combination of smaller changes that produces the best outcome.
How can I get a clearer answer about retirement?
This is where detailed financial modelling becomes useful.
At Guidance Financial Services, we bring together your super, investments, spending, debts, retirement timing and possible Age Pension position to show where your current path may lead.
We can then test the questions that matter to you.
What happens if you retire two years earlier? Could you reduce your hours? How much could you spend without putting your later retirement at risk? Would making changes now materially improve the outcome?
A model cannot predict the future perfectly. What it can do is give you a much clearer view of what may be possible and which decisions matter most.
You may find that you are comfortably on track. You may uncover a gap while there is still time to do something about it.
Either answer gives you something useful to work with.
Want to know if you are on track to retire?
At Guidance Financial Services, we use detailed financial modelling to show whether your super, investments and expected income are likely to support the retirement you want.
We can help you understand when you may be able to retire, whether your money is likely to last and what you could change if the numbers fall short.
The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Before acting on any information, consider whether it is appropriate for your circumstances and seek professional financial advice where required.
