The future may still seem far away, but it’s never too early to plan for it. But when exactly is the right time to think about your retirement plans? This article will help shed some light on retirement planning and hopefully help you set your savings timeline to get ready for retirement.
Knowing the Difference Between a Super Fund and a Pension Fund
When preparing for retirement, it’s important to understand how a super fund and pension fund work and what the difference is between the two. While both are part of the superannuation system, they are not the same thing.
A super fund refers to your employers’ contributions during your stay in the organisation that will go to your retirement fund. Meanwhile, the pension fund comes from taxpayer money and is given to you by the government.
The only contributions you can make are to your super fund, as pension funds cannot receive additional contributions. When a person reaches retirement age, their super fund will be rolled over to their pension fund. However, even with both a super fund and a pension fund, the amount of money may not be enough to live a comfortable life throughout retirement.
When Should You Retire in Australia?
While the retirement age in Australia is not fixed, you can only access your super fund at around 55 years of age. And by 2023, one can become eligible for age pension when they are 67 years old.
In Australia, the average retirement age is 62.9. However, retirement doesn’t have to be a one-time thing. In fact, each year, a quarter of retired Australians ages 45 to 59 return to employment.
When Should You Start Saving for Retirement?
According to the Australian Government Actuary (AGA), the life expectancy for males in Australia is 88, while for females, it is up to 90. So, if you retire at the age of 65, you must have saved enough to cover 23 to 25 more years. Given these numbers, it’s best to start saving as early as possible to live a comfortable life in retirement.
How Much Do You Need to Save?
If you want to live a reasonably okay life in retirement, you must aim to have a budget of at least $24,554 each year. But if you are a couple, this annual budget should be at least $37,014. This means sticking to a tight budget and living frugally. Most of your budget should be allocated for essentials only.
For a modest retirement, an individual’s annual budget should be at least $27,902, while a couple’s yearly budget should be $40,380. To achieve this, you need to cut back on some spending, particularly when it comes to leisure activities.
And if you want to have a cozy retirement, your annual budget should be at least $43,687 for individuals and $61,909 for couples. This will give you enough money to afford a good car and pay for house repairs. You can even go on occasional holidays, whether local or overseas.
Final Thoughts
It’s never too early to start planning for your future. And if you want to live a comfortable retirement life, it’s best to start saving at a young age and practice good financial habits. When you start preparing for your future now, you’ll definitely end up thanking your past self for making the responsible decisions.
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