Expert tips to ensure your money lasts in retirement

Starting early with your retirement planning is essential for many reasons.

A couple sit on the deck of a yacht with a beautiful mountain and lake backdrop enjoying the fruits of their long-term ASX shares and dividend income.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Living longer than your money lasts is a common concern among those close to or living in retirement.

The financial industry has a fancy term for this concern — it's called 'longevity risk'.

Chris van den Berg, an advisor at Findex, provides the following tips to help Australians better plan for retirement and better manage their money and investments once they stop working.

How not to run out of money in retirement

Van den Berg says preparing well for retirement means navigating elements like share market fluctuations, rising inflation, healthcare costs, increased life expectancy, and complex tax rules. 

Firstly, he recommends gaining an understanding of your anticipated income and expenses in retirement.

Step 1: Working out your expenses in retirement

Probably the biggest expense category to consider for your retirement is housing costs. The ideal scenario is to own your own home without a mortgage by the time you stop working.

The periodic Survey of Income and Housing, last conducted by the Australian Bureau of Statistics (ABS) in FY20, found average weekly housing costs for Australian homeowners without a mortgage totalled $54.

That compares to a whopping $493 per week for owners with a mortgage and $379 per week for renters.

Given Australia's strong property market and the exponential rise in home values since the 1990s, more young Australians expect to still be paying off a mortgage in retirement.

A recent survey by superannuation provider Vanguard found that 45% of Gen Zs and 32% of Gen Xers believe they'll still be paying off their mortgage in retirement.

Vanguard research also shows that 8% of current retirees are paying off a home loan. According to the ABS, there are 4.2 million retirees in Australia today, so 8% equates to 336,000 homeowners.

Van den Berg said other ongoing expenses to consider for retirement were healthcare, general living costs such as food, clothing, and entertainment, transport, insurance, and travel and holidays.

On top of that, factor in one-off or irregular costs, such as home renovations or buying a new car.

Also consider the tax liabilities you may face on your investment income and/or capital gains.

Step 2: Income in retirement

Step two is assessing the income you anticipate having in retirement based on your current savings, investments and future goals for wealth generation.

Van den Berg said superannuation was the primary component of most people's retirement savings.

He explained:

For most Australians, your super fund will account for the bulk of your retirement money. Begin with your most recent balance, then predict future contributions and growth to better understand your upcoming income.

Online superannuation calculators allow you to project your potential balance at retirement.

Common income streams in retirement include superannuation pension income streams, Van den Berg said. He added:

Converting super into regular pension payments can create tax-effective income for funding living costs.

Other passive income streams include income from ASX dividend shares, rental income from an investment property, and interest earned on cash savings in a bank account.

Popular ASX 200 shares that pay fully franked dividends include BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), and National Australia Bank Ltd (ASX: NAB).

Why you need to start planning early

It's important to start planning for your retirement early in life for a number of reasons.

If you're going to partly fund your retirement through investments like ASX shares or property, you need the element of time to achieve meaningful capital growth.

If savings is part of your plan, you also need time to allow compound interest to do its magic.

You also need to start retirement planning early because you may end up being one of many Australians forced to stop working early for reasons beyond your control.

As we've previously reported, the average age at which most workers intend to retire is 65.4 years.

However, a survey of existing retirees found they retired much earlier at an average age of 56.9 years.

Motley Fool contributor Bronwyn Allen has positions in BHP Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retirement

Legendary share market investing expert, and owner of Berkshire Hathaway, Warren Buffett.
Retirement

No savings at 50? I'd use Warren Buffett's methods to retire rich

Following's the Oracle of Omaha's advice could ensure you retire wealthy.

Read more »

Couple holding a piggy bank, symbolising superannuation.
Retirement

The best ASX ETFs for retirees in 2025 and beyond

Here are three funds that could be good additions to a balance retirement portfolio.

Read more »

Married elderly man and woman in love spending time together on bench on a phone, symbolising retirement.
Retirement

Aiming for rock-solid retirement income? I'd buy these two ASX shares

I’m reassured by the stability of these two stocks.

Read more »

Smiling elderly couple looking at their superannuation account, symbolising retirement.
Retirement

How to retire early using ASX shares (even when starting late)

It's never too late to start investing.

Read more »

a mature aged couple dance together in their kitchen while they are preparing food in a joyful scene as the Breville share price rises on the back of a 25% profit surge
Retirement

Retirement income: 3 Australian dividend stocks to own for decades

Analysts think these shares could be good picks for retirees.

Read more »

Couple holding a piggy bank, symbolising superannuation.
Retirement

Is $500,000 enough to retire in Australia? Here's what the numbers say

Let's see where half a million would get you when it comes time to retire.

Read more »

An older couple use a calculator to work out what money they have to spend.
Retirement

Changes to deeming rate thresholds may boost your pension from tomorrow

The thresholds used to calculate deemed income from financial assets are going up. Here is the impact.

Read more »

Two people smiling at each other while running.
Retirement

From next week you can earn and own more while still qualifying for the age pension

The latest changes to the pension assets and income tests will come into effect on Tuesday.

Read more »