Wealth Management

Setting retirement goals: knowing your financial and lifestyle needs

Chris Elliott
13 July 2023
9 min read

14 July 2023

Everyone is entitled to have a comfortable retirement lifestyle with minimal financial risks but achieving a comfortable future doesn't happen on a whim or by chance. To shape your future, you first need to have a clear vision of what you want your future to look like. Then, once you’ve pictured your future in so much detail you can almost reach out and touch it, it’s time to start developing a solid strategy to help you get there.

Unfortunately, most people facing retirement don't realise that the easiest place to start crafting their master plan is by setting clear retirement goals – goals based on an in-depth assessment of your unique retirement needs.

So, take this as your sign to start articulating what your dream retirement looks like. In this article, we'll explain how to consider using your current financial situation to help you craft a retirement plan that will meet future you’s financial and lifestyle needs.

Not all retirement goals are the same

While it’s fair to assume that most people hope for a comfortable retirement, when you get down to the nitty gritty and really start to map out your goals, you may find that they vary wildly compared to others.

Some people picture themselves travelling the world, while others visualise spending more time with family, pursuing hobbies or starting a business. There are also many people out there who have no intention of retiring – ever. They may even fear it; preferring to refer to it in hushed tones and whispers as though it sparks the end of something, rather than the beginning.

While it’s easy for those of us excited about the prospect of escaping long commutes, difficult bosses or workplace politics, it could be that you find yourself grieving the loss of your old life and lack confidence about your financial future: this is why planning can make all the difference.

Not only does setting retirement goals help you get realistic about your future, but it can also help you navigate the emotional process and set expectations rather than limitations. Want to start that business? Go for it. Want to continue working on the farm you helped build? No problem. There is no ‘right’ way to retire, but there is a right way to prepare for your financial future.

Assessing your current financial situation

Assessing your current financial situationThe first step to setting retirement goals is to consider your current financial situation. That involves assessing your current income, expenses, liabilities, and therefore your overall net worth position; having a clearer picture of your retirement savings and investments, calculating your retirement income needs, and approximating your future expenses and income sources.

  • Assess your current income and expenses. To understand your current financial situation, it’s a good idea to assess how much you're earning and how much you're spending. This information can help you understand your current financial position and identify areas where you may need to reduce spending to increase your retirement savings.

  • Review your retirement savings and investments. Knowing where you stand with your retirement savings and investments can help you determine whether you're on the right path to achieving your retirement goals or need to tweak your savings and investment strategy.

  • Calculate your retirement income needs and future expenses. To achieve the retirement lifestyle you have in mind, you need to know your retirement-related living expenses such as property prices, health care costs, and other discretionary spending. Doing this gives you a clear understanding of how much money you will need to sustain your anticipated lifestyle in retirement.

  • Establish any potential income sources. Perhaps you have investment properties, dividends or maybe you plan on working part-time. Factoring in any potential income streams may help you paint a more accurate picture of your retirement lifestyle.

  • Set a retirement budget. Retirement may change your lifestyle a little or a lot but either way, it’s important to monitor your spending. To effectively set a retirement budget and track your finances, calculate how much income is coming in by looking at your payslips, bank statements, and Centrelink Deduction Statement. Subsequently, work out how much you're spending by looking at your bills, credit card reports, direct debits, receipts as well as annual and one-off expenditures, such as insurance and car registration. You can leverage budgeting apps or online templates like the Budget Planner from the Government's MoneySmart website to easily capture and track your expenses.

Determining your retirement lifestyle and income needs

Once you have a well-rounded assessment of your current financial situation, it’s time to set some retirement goals by establishing what your basic lifestyle and income needs will be. Here are the main factors that can help to set the groundwork for your retirement plan.

Expected retirement age and life expectancy

To determine your retirement lifestyle and income needs, you first must know your expected retirement age and life expectancy. According to the Australian Bureau of Statistics (ABS), the average retirement age is 55.4 years, with women tending to retire one to three years earlier than men. On the other hand, life expectancy in Australia is 85 for women and 81 for men. That means, depending on the age you intend to retire, your retirement savings account should have enough money to fund your retirement lifestyle for up to 30 years. Having this in mind can help you manage longevity risks – where an individual's life expectancy extends beyond when their capital ends.

Health and medical expenses

Your health can hugely impact your retirement income planning. If you're healthy and fit, especially during the years immediately after retiring, you'll consequently live a more active lifestyle. However, if you're in poorer health, you'll discover that your medical expenses might be higher because you'll have to cater to things like personal health insurance and other medical-related costs.

While it’s not possible to predict the future and anything can happy between now and then, it’s still a good idea to factor potential medical expenses into your long-term plan and account for the fact that getting older can also mean your health may decline.

Housing and living expenses

In the quarter ending March 2023, the Association of Superannuation Funds of Australia (ASFA) estimated that a couple needs a gross income of AUD$70,482 to live a comfortable retirement lifestyle compared to AUD$50,004 for a single person.

If you still have a pending mortgage on your house, you can factor it into your planning. Sometimes you might have to delay your retirement until you've cleared it or ensure you have the means to pay it off once you retire.

Where you plan to live after retirement also affects your regular outgoings and daily living costs. It may be less expensive to live in an area with easy access to public transport and amenities than in a remote place away from the city. Additionally, downsizing or investing in a smaller property can significantly reduce your monthly utility and maintenance costs. As an Australian, you can choose to make "downsizer" contributions to boost your superannuation fund.

Travel and leisure activities

There's a high likelihood that you have a bucket list of things you promised yourself you'll do once you stop working and have more free time on your hands. Travel plans and big holidays abroad are frequently featured on pre-retiree to-do lists so you'll need to ensure you have sufficient money to fund your holidays without denting your retirement income. You may also have leisure activities you want to pursue, such as gardening, home improvement, and other new hobbies.

That said, go through your list and have a clear idea of the potential expenditure required to accomplish those goals.

Family and dependants

Alongside assessing your potential expenditure after retirement, you may want to consider the financial commitments to your family and dependants.

You might have children that require your help with financial contributions like get on the housing ladder or supporting grandchildren. Likewise, if you have surviving parents and other elderly relatives who depend on you financially, it will affect your retirement income planning.

Inflation and tax rates

When working out how much you'll spend in your retirement, it's essential to factor in inflation and the rising cost of living. A higher inflation rate can significantly erode your retirement savings over time, which means you may not be able to spend as much in the future with the same amount of money you have today. Consider your financial goals and determine how inflation will impact your personal circumstances after retirement.

Moreover, stay on top of the ever-changing tax rates, lest you end up paying more taxes in retirement than you expected. A comprehensive retirement plan that takes superannuation funds into account can help you stay ahead of the curve. Also, keep up with any new legislation or legislative amendments that could affect your tax obligations in retirement.

Working with Findex to create a personalised retirement plan

Working with Findex to create a personalised retirement planPartnering with a financial adviser can take a lot of the stress off planning your retirement. They can help you with assessing your financial situation, setting goals, financial modelling and investment strategies. They can also help you factor in tax and assist with estate planning so ensure your loved ones are taken care of.

Our wealth management experts spend time getting to know you to create a personalised retirement plan that matches your financial and lifestyle needs. For more insights or advice on setting retirement goals, contact a Findex's financial adviser today and begin your journey to a comfortable retirement.

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The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Findex Group Ltd.

Author: Chris Elliott | Managing Partner

Chris commenced with Findex in 2015 as a senior financial adviser and brings with him over 28 years’ experience in the financial services industry. Chris advises on wealth management, direct equities investments, superannuation strategies and estate planning.