How to Identify Your Retirement Goals

When planning for retirement, a critical step is identifying your retirement goals. Once you have a clear idea of where you want to go, you can determine what you need to do to get there. Many factors come into play when identifying your goals, and here we’ll consider these and how financial planning for retirement can help you make it happen.

How much will you need to retire?

Answering this question is the starting point of determining your financial goals for retirement. It can include your super balance and other investments that generate retirement income when you reach retirement age. While your retirement might be 10, 20 or 30 years away, some guidelines can help you determine approximately how much you’ll need when you stop working.

The Association of Superannuation Funds of Australia (ASFA) has developed a Retirement Standard to determine how much, on average, couples and individuals will need to retire at comfortable or modest levels. For example, the comfortable level of retirement as defined by AFSA includes things like:

• Owning a reasonable car and being a to handle insurance and regular maintenance

• Making home repairs, updating and maintaining kitchen and bathroom appliances over 20 years

• Regularly participating in leisure activities, including club membership, cinema visits, exhibitions, dance/yoga classes

• Having confidence in using air conditioning in the home and affording all utilities.

On the other hand, the modest level of retirement is based on greater reliance on the age pension and includes:

• Owning a cheaper, older, more basic car

• Having a limited budget for home repairs, household appliances

• Infrequent leisure activities, occasional trips to the cinema

• Needing to keep a close watch on all utility costs and making sacrifices.

How you plan to live in retirement will determine how much you need to have in retirement savings.

Learn more about the AFSA Retirement Standard.

For retirement planning in Australia, the current savings level needed to retire comfortably in 2023 is $690,000 for couples and $595,000 for singles. You need to keep in mind that these amounts will increase with inflation. Assuming an average inflation rate of 3% (although it has been much higher recently), a couple will need $927,302, and a single person will need $799,630 if they plan to retire in 10 years. In 20 years, these figures will be $1,242,000 for couples and $1,071,000 for singles (based on 3% annual inflation).

For an estimate of how much super you should have today to retire comfortably, try AFSA’s Super Balance Detective

Creating a retirement savings plan

After determining your future needs and position, creating a retirement savings plan can help you reach your retirement goals. If you have determined that the standard employer contribution (11% from 1 July 2023) won’t be enough to reach your goals, you can take steps to improve your situation.

Concessional super contributions

One popular and effective retirement strategy is making additional contributions to your super fund. You can make concessional contributions above the super guarantee amount, taxed at a concessional rate of 15%.

The current marginal income tax rate is 32.5% for people earning between $45,000 and $120,000. So when you make additional super contributions – which could be salary sacrifice or personal deductible contributions – you’re paying around 53% less in tax on these contributions compared to taking them in current income. If you earn more than $120,000 annually, the marginal tax rate is 37%, and when earning more than $180,000 it is 47%, so the tax savings can be even higher when making concessional super contributions.

The annual concessional contributions cap of $27,500 includes employer payments and additional payments through salary sacrifice. However, you can carry forward unused concessional contributions from the previous five years if you meet specific criteria, including having a total super balance of less than $500,000 in the previous financial year.

Non-concessional super contributions

Non-concessional super contributions are those made using after-tax income and not taxed in your super fund.

Some non-concessional contributions can include contributions made by:

• You or your employer from your after-tax income into your super fund

• Your spouse to your super fund (except if your spouse is your employer)

• You have not been claimed or allowed as an income tax deduction.

The non-concessional contributions cap is $110,000 per year. But if you make contributions above the annual non-concessional maximum super contribution, you can use the ‘bring forward’ rule to increase this amount. The bring forward rule is based on several criteria, including age and total super balance. These include being under 75 years of age and having a super balance less than $1.59 million. If your super balance is less than $1.48 million, you can bring forward three years of cap amounts to a maximum of $330,000. If you have a super balance of $1.48 million or more (but less than $1.59 million), you can bring forward two years of caps to a maximum of $220,000.

Non-concessional contributions are usually made closer to the transition to retirement to increase your super account balance. Benefits include:

No tax on contributions because after-tax dollars are used

Investment earnings will be taxed at a maximum rate of 15% and then are tax-free during the retirement phase

Receiving non-concessional contributions completely tax-free when accessing your superannuation in the future. This can be a lump-sum payment or part of a pension paid over time.

How you make additional super contributions and the potential benefits will depend on your goals and financial situation.

Diversification strategy

Another key factor in retirement planning is diversification. A diversified investment portfolio can protect you from market fluctuations and provide more consistent returns in the long run. In addition to superannuation, investing in property can be a way to build wealth and be prepared for retirement.

Find out more about our  property investment service as part of retirement planning.

Protecting your retirement savings

As well as building retirement savings, protecting them is essential to retirement planning. As you get closer to retirement age, balancing risk with investment returns grows in importance because there’s less time to make up for losses. Getting financial advice from a financial planner can help you determine the best retirement strategy as you reach retirement age. Protecting your retirement savings also includes having an estate plan to maximise wealth for family members and minimise potential legal challenges. Find out more about wills and estate planning.

Are you ready to start planning for retirement?

It’s better to start early, but developing a plan mid-career or when you’re nearing retirement can help you get prepared and reach your goals faster. 

Contact Lanteri Partners today to embark on your retirement goal-setting journey and secure your financial future.