How much can we spend in Retirement?

After looking forward to retirement for years, sometimes the imminent event can lead to previously happy couples arguing over money. And one of the biggest factors is the question of “how much can we spend in retirement?”

As financial planners, we’re used to occasionally working as amateur marriage counsellors. Not only is money a leading cause of disagreements and divorce, retirement can also be a stressful life event. So, if the financial aspects aren’t well planned, it can be a recipe for disaster.

Thankfully, planning & communication can alleviate much of this stress, as well as improve the financial outcomes for those entering retirement.

Typically, the process starts with taking stock of the current situations – looking at existing super & bank balances, other investment values, and potentially any remaining debt that needs to be cleared.

In addition, it’s important to understand and agree on your most important financial goals for retirement, and working through any differences. Top of this list is usually “maintain a decent standard of living” followed by “not to run out of money!” The tricky part often is defining “a decent standard of living” but while some like to use a rule of thumb like “65% of your pre-retirement income” we generally think it’s best to base the target on you actual spending patterns.

One of the biggest areas of disagreement is around leaving a legacy for children. Without having an open discussion as a couple, and getting advice on the financial consequences for your retirement, it’s very difficult to arrive at a happy outcome.

In many cases clients are happy as long as the children inherit the family home, with anything extra being a bonus.

Another key area of contention is additional care needs later in life, usually for older retirees of those with mixed health. While some of these issues are non-financial, there are also important financial considerations which warrant advice from an expert.

With all of these key issues dealt with, a financial planner is able to devise a strategy to optimise the client’s financial arrangements, minimising tax and in some cases accessing government benefits, as well as structuring the investments to perform over time. They can also produce some modelling to show how the retirement savings and income can be expected to last through retirement, based on some reasonable assumptions. In the event that the desired income is not sustainable for the clients based on their level of assets, discussions can be had on what to compromise: either reduce the income expectation, shorten the expected income timeframe, or consider options to downsize or access capital from the home or other assets.

Finally, retirement planning is not a set and forget exercise. Monitoring the progress, and adapting to new rules and market conditions are all important facets of the review process, and help to keep things on track for a long and happy retirement.

As always, if you need any advice or assistance with planning your retirement, contact us today.

Published : 08 Oct 2021

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