Retirement

How long will my retirement income last?

Thanks to current life expectancies and medical advances, Australians who retire at 65 can expect to spend 20 years in retirement - that's around a quarter of your life.

To a large extent the amount of money you need to fund your retirement depends on your lifestyle expectations. Retirement experts suggest you should aim for around 65 to 70 per cent of your pre-retirement income to maintain your current living standards.

The June 2008 Westpac-ASFA Retirement Standard estimates a single person retiring at age 65 will need an annual income of $37,452 and a couple $50,086 for a comfortable retirement lifestyle. This allows for items like private health insurance, quality purchases and a broad range of leisure and recreational activities (travel, hobbies, entertainment and eating out).

Just because you give up work doesn't mean your super should. How you invest your super benefit when you retire can make a big difference to your lifestyle choices in retirement.

Issues to consider:

• Investing for the long-haul: remember your retirement benefit may need to last around twenty years so make sure you invest yours wisely. Including some growth assets can help your retirement savings keep ahead of inflation and last the distance.
• Tax: think carefully about how you access your super benefit as tax can make a big difference to how long your retirement income lasts. Remember, if you take your benefit as a lump sum and invest it outside the superannuation environment you may be subject to income tax on your investment earnings. Rolling your benefit into a retirement income product offers substantial tax benefits.
• Social security: you may be able to supplement your retirement benefit with the Aged Pension if eligible. You will need to pass the income and assets tests to qualify.
• Accessibility: be realistic about how much money you will need to live off. Don't forget to factor in any holidays or major purchases you are planning to make. On the income side, take into account any investments you hold outside superannuation as well as any social security payments you may be entitled to.
• Balancing risk and return: make sure you understand your attitude to risk and choose your investment strategy accordingly. Spreading your money across a range of investments is one of the best ways to reduce your exposure to market risk. With a diversified portfolio of investments, returns from better performing investments can help offset those that underperform.
• Get advice: Taxation and social security rules can be complex, so you may want to speak to a financial adviser about the best way to structure your superannuation and other assets for your individual needs and circumstances.