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Ask Paul: I earn $57k a year - can I afford to retire in two years?

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I am a 60-year-old female and am currently working a four-day week, which earns me $57,000pa. I salary sacrifice the maximum amount into super and have a balance of $520,000 in a conservative account.

I would like to know if a transition to retirement account will provide me with any further savings? I do not need the extra money to live on currently, as I am quite comfortable living on $36,000pa, but have read that I may save a few thousand a year if I have a transition to retirement (TTR) pension.

I have chosen a conservative investment option for obvious reasons, but question is if my choice is playing it too safe.

paul clitheroe

I am aiming to save enough super to provide $40,000 a year in retirement. I do not have any dependants and have bought a house with my sister, so I basically own half a house.

My aim is to retire at 62 if I have enough funds to do so. Do your calculations suggest that I am on track to achieve my goal? - Robyn

Hi Robyn. I'd have a chat to your fund about the value in a TTR option. It is in possession of all the necessary facts and tax data and can give you an exact statement about any savings. This is well worth doing.

But the key fact is that you are maximising your contributions via salary sacrifice. A conservative fund will be less impacted by sharemarket movements, so it is not unreasonable to assume that in two years you would have over $600,000, with your contributions, even if its performance was only modest.

With no dependants, leaving an inheritance beyond the half share of your house is probably not important to you.

So the question becomes: Can around $600,000 generate some $40,000 a year for many decades? This would require your fund to earn a return in the order of 6.5% a year. This, I would suggest, is too high a hope for a conservative fund.

I took a look at ASIC's "how long will my money last?" calculator on its MoneySmart website and in the absence of any age pension, based on historically sensible returns, it would get you into your 80s.

But as you fall below the asset test for single aged pensioners, your government age pension will increasingly cut in. This is a complex issue and, again, your super fund can model your complete position, including inflation and the aged pension. Working an extra year or so can also be modelled. This can make a big difference.

While you are meeting with your fund's advisers, or an independent adviser, a conversation about whether you should move some of your super to a balanced option is also worth having.

This is not to be done lightly. It involves a complete understanding of the risk and return trade-off and your own tolerance for risk. The key here is to not do anything that would cause you to lose sleep at night.

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Paul Clitheroe AM is a respected financial adviser and Money's founder and editorial adviser. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Click here to email Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section.
Comments
Catherine Vines
April 16, 2020 7.38pm

Paul, I am 64 and prior to covid I had $320, 000 in super, I now have $270.000 . In high growth. my husband has $100.000 in his and he is retired , we own our own home and have no debts at all. My question is I have now started a business I am in private practice as a counsellor, I know my business will grow it's in a high need area. I believe I. Can work till I am 70 I will continue to put money into super, do you think my super will grow to provide us with a comfortable retirement , or do you have other strategies I could do, cathy

Money magazine
April 17, 2020 10.05am

Hi Catherine,

Unfortunately Paul can't respond to questions in the comments here. We will pass your question on to him for consideration for Ask Paul.

- Money team

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