This month at Wealth Architects Insights we wanted to do a quick recap on some of the recent COVID-19 Stimulus changes and discuss how much you may need in retirement.
1. Job Keeper & Job Seeker Changes
Job Keeper will be extended a further six months taking the package through to the 28th of March 2021 with some slight tweaks. Firstly, businesses will need to prove that they fall under the reduction of revenue of 30% or more for the June, September and December 2020 quarters. The rate of payment will also be reduced depending on how many hours a person works per week.
|
Period |
>20 hours per week |
<20 hours per week |
|
28/09/20 to 3/01/21 |
$1,200 per fortnight |
$750 per fortnight |
|
4/01/21 to 28/03/21 |
$1,000 per fortnight |
$600 per fortnight |
Further to this, for those who qualify for the Job Seeker payments the current rate of $550 will reduce to $250 and be extended to the end of December 2020 (was originally the end of September). There are numerous tests and thresholds that will come into play from the end of September 2020 in order continue to get access to the supplement. As such if you fall under this category its best to refer to the following link (Job Seeker Payment) for more information.
2. Extension to the super early access
The government has decided to extend the early release of super application period to the 24th of September 2020. Therefore, an amount up to $10,000 may be accessed up until this date by eligible Australian and New Zealand citizens and permanent residents. If you fall into a position where this is something you need to consider, we strongly advise you speak to your financial adviser so that they can step you through the implications this may have on your future retirement.
How do I know if I have enough in retirement?
Over the years there have been differing views on how much is truly needed in retirement to live comfortably. Ideas such as the 4% rule or even the 5% rule have been widely thrown about by experts in the past. These rules used historical data on stock and bond returns over long periods (50 years) to come up with a % of your retirement savings that can be drawn upon to live a comfortable retirement lifestyle. The problem with these strategies is that we are living longer and interest rate and bond yields are much lower.
AFSA (Association of Superannuation Funds of Australia) whom release updated quarterly figures have defined a modest retirement lifestyle as being better then living on the Age Pension but having the funds to afford basic activities. On the other hand, they define a comfortable retirement lifestyle as being able to afford a reasonable car, good clothes, a range of electronic equipment, domestic travel as well as going on the occasional international holiday. The specific amounts (as updated for the March quarter 2020) are shown in the table below.
|
|
Modest Lifestyle |
Comfortable Lifestyle |
||
|
|
Single |
Couple |
Single |
Couple |
|
Total Per Year |
$28,220 |
$40,719 |
$44,183 |
$62,435 |
You may be sitting there scratching your head thinking ‘I spend way more then that’ or ‘I don’t fit under any of those categories’. We all know everyone has a different idea of what their retirement lifestyle should look like and we all have different spending habits. Some retirees like to travel in style and frequently and some do not like to travel at all. Some have a range of activities that they like to take part in whilst others just love to enjoy the comforts of their home and some of the simple things in life. Your retirement is unique to you and as a result so are your spending habits. This is why it is important that before you retire you speak to your financial adviser about formulating a budget well in advanced of retirement so you can have an idea of what your retirement goals are and how much you will want to spend in retirement. Then ultimately plan to achieve that goal (if you are not there yet) or work out the next steps (if you are).
So how much do I need in retirement? – excluding any Age pension benefits and assuming retirement is age 65.
- $60,000 per annum = $1,100,000
- $70,000 per annum = $1,250,000
- $80,000 per annum = $1,450,000
- $90,000 per annum = $1,650,000
- $100,000 per annum = $1,800,000
Here at Wealth Architects we take a more conservative approach to this especially with Age Pension benefit rules changing on a regular basis, adjusting for inflation as well as keeping longevity risk front of mind. These figures also assume you are debt free and own your own home. So, depending on your retirement budget and ‘what you want to live off’ the amount needed in retirement can fluctuate greatly.
It is also important to note that as we get older our spending habits and income requirements change. Early on you may travel more and spend more whereas in the middle of retirement you may spend a lot less and then spend a bit more again as you reach the later stages of retirement. As such there is no set and forget amount and how much you draw should be reviewed regularly taking into consideration the current market and economic environment and potential changes to your circumstances.
Final Word
Whilst the government has made some changes to COVID-19 stimulus which is welcome it is important to remember that these changes cannot last forever. 2020 is a year we will all want to forget, and we understand that the short-term impacts to our lives is front of mind now. But it is equally important to think about the future and plan for what we work so hard to achieve.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent
