1 September 2023

According to the Association of Superannuation Funds of Australia Retirement Standard, you require between $500,000 and $1 million to sustain a comfortable retirement lifestyle. Another rule of thumb to estimate how much money you’ll need in retirement is to assume you will require 67% (two-thirds) of your pre-retirement income to maintain the same standard of living.

But how do you really know if you have enough?  

To help set a realistic estimate of how much you will need to transition to retirement, financial planners use what’s known as financial modelling; a mathematical representation of your financial situation through the analysis of factors like income, expenses, savings, investments, tax rates, and inflation. 

In this guide, we’ll show you how financial modelling can help you to achieve your goals and objectives, whether it’s cutting back your hours, reducing your number of workdays or retiring full-time.

Benefits of financial modelling 

• Estimating your retirement savings . Knowing how much to save and invest for retirement planning is vital. This is where financial modelling comes in handy. It estimates how much you should save and invest for a stress-free retirement.  

• Projecting longevity and withdrawal rates . The thought of outliving your retirement savings can be frightening. The good news is this is where financial modelling comes to the rescue. Financial modelling uses variables like lifestyle expenses, investment return, and inflation to ensure a sustainable retirement. Through careful calculations, and projections, you can determine how long your savings can last and how much you can withdraw without depleting your savings.  

• Testing scenarios and assumptions . Depending on your goals, preferences and situation, you can use financial modelling to project and evaluate different scenarios. It is the best tool for exploring early retirement or adjusting your investment strategy. This way, you can analyse the possible outcomes of your choices and adjust accordingly to realise your financial goals. 

• Identifying and mitigating risks . Uncertainties like market volatility, inflation, healthcare costs, longevity risks, social security and government policies, personal circumstances, and taxes are the primary uncertainties that can affect your retirement planning.  

Inflation, for example, eats away any gains made over the years. According to a Savings report, cash in a savings account and earning 2% p.a. interest loses 0.6% in value yearly if the mean annual inflation is 2.6%. 

Financial modelling provides tools for spotting and tackling these challenges in advance. You can use financial modelling to test different scenarios and assess how these uncertainties impact your retirement planning. This way, you can evaluate the appropriate strategies and options to take steps towards a more financially secure retirement.  

Tips for using financial modelling for retirement planning 

Here are some tips for using financial modelling for retirement planning. 

1. Start early and review regularly 

Starting your retirement planning early is crucial for creating enough time for saving and investing. This way, your funds can grow over time for a modest retirement and appropriate strategies can be utilised to tax-effectively build retirement wealth. Reviewing your retirement plan regularly is also essential for adjusting your financial modelling depending on uncertainties like inflation and unforeseen changes to your personal and financial position.

2. Seek professional advice 

Financial modelling is complex, especially if you're not a finance expert. Seeking professional advice from qualified financial planners and advisers can move the needle if you need help navigating the intricacies of financial modelling, like tax implications, investment strategies, and retirement regulations. They'll provide valuable insights, ensuring your financial model aligns with your goals and risk tolerance. The experts at Findex can help you with this. 

3. Establish realistic and flexible assumptions 

Being realistic about your expectations and assumptions is vital for a viable retirement plan. You must consider factors like inflation, investment returns, healthcare costs, and lifestyle expenses as they primarily impact your financial model. 

4. Take a holistic approach 

A viable financial model for retirement planning should consider your entire financial picture. It should include all your income sources and your current assets and liabilities. 

Financial modelling for retirement planning 

Findex is your trusted partner for financial modelling. We're a leading financial services firm specialising in wealth management and investment advice. Our team of expert advisers can help you with your financial modelling needs for stress-free retirement planning. 

Real client story: Wayne and Ellen 

Like many of our clients, Wayne and Ellen Humphries never gave much thought to retirement. Realising they needed financial clarity, the couple turned to Findex for retirement planning advice.

Using a combination of wealth-building strategies and financial modelling to show Wayne and Ellen how they would be able to retire on their terms, Shane Fitzsimmons, Associate Partner – Wealth Management helped The Humphries create a plan that would enable them to retire when they want to, not when they have to. Watch their full story.

“A lot of people don't want to know their situation because they're scared that if they do find out, then it's going to be a bad conversation. But the quicker you can understand your financial position, the quicker you can build wealth and start planning for that retirement. It's not about retiring when you can, it's about retiring when you want to retire.” - Shane Fitzsimmons, Associate Partner – Wealth Management

How Findex can help you:

• Personalised approach. Our expert advisers take time to understand you, including your plans and preferences. We then tailor a financial model aligned with your retirement objective and provide a plan for achieving it. 

• Comprehensive services. We deal in various wealth management services like investment advice, wealth management for families, personal risk insurance, superannuation advice, retirement and pension advice, tax and asset protection structures, estate and legacy planning, and financial modelling. We incorporate these services into our client's financial models for a robust retirement plan. 

• End-to-end support. Our clients enjoy end-to-end support throughout the financial modelling process. Our team of experts will walk with you every step of the way to understand your goals and preferences and to ensure your retirement plan is viable. 

• Trust and empathy. We value good relationships with our customers. We take the time to understand what’s important to you and also to explain strategic and investment concepts with you in detail.

Key takeaway 

Financial modelling is a powerful tool for retirement planning. You can optimise your retirement plan by starting early, being realistic, and considering professional advice. Contact us today for financial advice and expert assistance with financial modelling to help secure your financial future in retirement.