November 21, 2017 The implications of not having enough in retirement
How many people have you heard talk about travelling the world in retirement?
And how many people past retirement age do you know who are still working part-time? Or forced to reach out to family and friends for help?
Depending on whether you’ve already started to get the jump on retirement, not saving enough for your post-working-life dream can have dire consequences.
When you break it down, ‘retirement’ effectively means having a steady income when you retire – one that supports the lifestyle you want to live once you’re ready to say goodbye to the work-a-day world.
And your starting point should always be precisely that:
“How much am I going to need to support the life I want to lead in 10, 20, 30 years’ time.”
Cost of living and inflation notwithstanding.
Start talking with someone who’s behind the eight ball about retirement, and there’s often a genuine sense of fear. And rightly so.
In fact, the number of Australians ill-prepared for retirement is sobering, with numbers touted by government sitting at around the 40 percent mark.
Add to that the fact that the ‘Australian government contributes less to old-age benefits than most other OECD countries’, according to a 2015 OECD report, and there’s cause for genuine concern.
Oh, and then there are the likes of Treasurer Scott Morrison regularly spouting that Australians should be ‘self-funded’ in retirement.
The way things are heading, the likelihood of a Plan B (the aged pension) will be pretty slim by the time our generation reaches retirement age. While seemingly a way off on the horizon, retirement isn’t actually that far away.
Here are a few hypothetical scenarios of the implications of not having enough in retirement…
Debt gets the better of you
Let’s start with an extreme scenario.
You don’t have enough saved for retirement, but you still continue living the same lifestyle you’ve always lived – using your credit cards to fund the shortfall.
Maybe you’d been banking on an investment coming off to get back in the black, and you thought you’d be able to pay it all off.
But that falls down, you owe $45,000 and you now have to radically change your lifestyle to accommodate what you can afford to live on. Worse still, you’re now in a position where you’re trying to pay down the debt and massive amounts of interest, too.
In other words, rather than actually enjoy your retirement – whether that’s playing endless rounds of golf or getting your frequent flyers up travelling here and there – you and your partner are living in a cycle of day-to-day stress.
I know, an extreme scenario, but it does happen.
Here, I’d argue that living within your means in retirement should be absolutely paramount, particularly if you’re short of life savings.
You’re forced to downsize
Okay, let’s run with the above scenario.
You’ve got to the point where you start thinking, maybe I’ll just sell the house.
‘I’ve been thinking of downsizing, anyway.’
Chances are you’ve been in the family home for 30 years. You and your partner brought up your three kids there – there’s a lot history and you have a lot personal belongings.
With your financial health not in the best of shape, you work out that to pay down the $45K and, with the balance, bolster your savings base to give you a moderate regular income (based on your now adjusted lifestyle), you’ll need to move into a smaller apartment, potentially quite a few suburbs away from family and friends.
You sell the house.
You worked for the best part of your working life, but now you’re doing your best to avoid outliving your money.
You’re forced to just suck it all up.
You’ll be out of money by 78
But what if you found yourself in a position where, even if you were to readjust your lifestyle, you only had enough money to get you to the age of 78, and then you’d have nothing?
Rather than lapping up retirement and kicking back, all of sudden you’re in a position where you’ll have to keep on working, potentially full time.
What people often don’t realise, though, is that given their age, finding work post-retirement age can be quite tricky.
Unless you’re a Cambridge professor, most struggle to get work.
Your kids end up having to support you
Not having enough retirement income could land you in a situation where, if you have children, you might have to move in with them, just to be able to make ends meet.
Here, living adult children can trigger a great deal of resentment and burden, especially if they’re married with their own families to support.
Worse, what if your children can’t afford to support you? Seriously, it happens. That’s really not a situation you want to get yourself into.
Forgive the worst-case scenarios, but the point I’m trying to make is this: while it’s easy to think you’ve got oodles of time to get your superannuation in good shape, time always flies by faster than you think.
Before you know it, 40 turns into 50, and 50 turns into 60.
In other words, the quicker you bed down the right retirement strategy, the faster you can get yourself into a position where you actually live the life you want to live in retirement – minus all the stress.
Drop me a line or give me a call if you need a hand getting the ball rolling.
Disclaimer: all information contained within this article is of a general nature. It does not take into consideration your personal financial circumstances. Please consult a professional financial adviser (just like us 🙂) when making a financial decision.