How to discover your half-a-million-dollar retirement nest egg
Many people are quickly discouraged when they think about retirement. They think it’s all too hard, that they have left it too late and there is no way they are ever going to save enough to live on when they do stop work.
Typically, this is because they have overlooked their unseen, unsaved ‘half a million dollar nest egg’.
By this of course, I’m referring the Federal Government’s aged pension, which is available to all Australians who reach retirement age, subject to how much money you own outside your own home.
It’s a significant back stop for anyone approaching retirement and should be the basis of your retirement plans. Importantly, once you qualify for it, you can’t loose it, its indexed for inflation, its tax free and it will last as long as you do. It is very much your long-lost nest egg.
So, for a home owning couple, you can own up to $401,500 in assets in addition to your own home and still qualify for the full age pension, which is currently set at $37,000 a year, paid out each fortnight.
To generate the equivalent income privately, you will need to save $500,000 a year and obtain a steady return, year in year out, of 7.5 per cent plus capital gains to ensure your assets keep up with inflation.
So even if you think it’s all too late and you have no money set aside for retirement, think again. As an Australian, you effectively have half a million dollars just sitting there, waiting for you.
Needless to say, the more money you do own in addition to your own home, beyond $400,000, the less you will receive in terms of the age pension and for those who own more than $800,000, the age pension will cut out completely.
However, if you do own your own home and have more than $800,000 in savings, you should be confident you will enjoy financial security throughout your retirement without relying on the age pension.
However, the reason it’s so important to keep in mind that the age pension is there through retirement, acting if you like as a safety net, is that it should help you as you approach retirement to avoid taking undue risks with your precious retirement savings.
If nothing else, it should help explode the myth that you need a million dollars saved in order to enjoy your later years and with this, help all Australians plan better for a safe and secure retirement knowing they have the age pension to fall back on.
When this becomes your starting point, the key questions then become how can I find somewhere to live where I don’t have a mortgage and how much money can I squeeze into super so I have a second income stream in addition to my age pension entitlements?
If you look at your retirement from this perspective, you will start seeing it in a very different light and hopefully it will encourage you to really think through your options about how you do choose to live.
The age pension should be the cornerstone of your retirement planning if you’re worried you haven’t saved enough. Importantly, if you think you might qualify for an age pension, you should start applying for it early and certainly within a year of when you hope to qualify for it based on your age.
This will give you plenty of time to meet with someone from Centrelink and complete all the paperwork they require. Be completely honest with Centrelink and they will help you make the most of your entitlements.
Patricia Howard, author of The No-Regrets Guide to Retirement: how to live well, invest wisely and make your money last (Wiley), is a licenced Australian financial adviser. She has a Commerce Degree from the University of Melbourne, holds her own Australian Financial Services Licence and recently passed the FASEA Financial Adviser exam. Find out more at www.patriciahoward.com.au
Note this is general advice only and you should seek advice specific to your circumstances.