Australia’s Treasury is currently reviewing our retirement system, and while most of us were celebrating Christmas and holidaying on the coast, financial services providers were scrambling to produce submissions for the review.  

Their submissions make for fascinating reading.

According to the super funds, Australians need more super to live well in retirement.  They say Australian households need more than $62,000 a year to live a ‘comfortable’ retirement.  And, according to the super funds, in order to fund that lifestyle, people need more than a million dollars in super.  

Unsurprisingly, their answer is for the government to change the law.  They want to pour more money into super funds by increasing mandated super above the current 9.5% a year.

More than money

But we think that’s bunkum.  Especially if increasing super contributions results in people forgoing today’s income in a low wage growth economy.

The fact is having an extra $50,000 or $100,000 in retirement doesn’t make any real difference to retirement satisfaction.

Over the course of our careers, we have helped thousands of local people plan for and then live out their retirements.  What we have seen is that people who retire with $450,000 in super can be just as satisfied with their retirement as people who retire with $650,000.

That’s because there’s more to it than money. 

The three C’s of a successful retirement  

Retirees who live successfully in retirement have three things in common, and it’s not money.  They have managed to achieve continuity with the things that are most important to them, they remain well connected within their communities, and they feel a sense of control over how long their money will last.

It’s an unfortunate reality that most of us don’t choose the timing of our retirement.  Research shows that most of us retire unexpectedly.  Usually we are made redundant, we get sick, or are required to care for a loved one who is sick.

That’s why it’s so important that people continue with the activities they enjoy beyond work and stay involved in the causes they feel passionate about.  It’s why we need to build interests outside of our work and broaden our communities beyond the workplace.  

And when it comes to feeling in control of your finances, it’s important to have the right mechanisms in place.

A framework for control in retirement

Most of us worry about running out of money in retirement. How long our money lasts depends on four factors: how long we will live, how much we spend, when we spend and our investment returns.  Now, we can’t really control how long we will live, but we can certainly control how much and when we spend, and we have a level of control over our investment returns as well.

Research shows that the majority of Australian retirees understand the difference between their financial needs and their discretionary wants.  From time to time they are willing to forego spending money on their wants.  They’ve had to do it all their lives.

This means that your retirement investments need to be flexible.  You need the ability to dial your income up and down as required.

At When Financial Solutions we apply a framework that provides some control over your medium- and long-term returns as well. We set aside your income for a few years and invest that money differently to the rest. With active planning, it means you choose the timing of when assets are bought and sold.  You are better positioned to ride out short-term market fluctuations and avoid selling quality investments at depressed prices.  

That’s why if you engage us at When Financial Solutions, it’s not a matter of ‘if’ you will live well in retirement but ‘when’.

Michael Bowman and James McMaster are co-founders of When Financial Solutions