Five luxury goods in retirement

When you hear the word luxury, what do you think of? Maseratis, Ferraris, private jets?
Dream on – we are too – but that’s not what we mean by luxury today.

We’re talking about needs versus wants. Food, clothing, shelter – these are needs. Having a spare room and a six-bedroom home during retirement are probably luxuries. So essentially, what we mean by ‘luxury’ is something that could be traded off; something that you could live without in order to make room for other things.
 
Your money is finite. So, the more things you want, the more it has to stretch. We’re not saying give up everything – we’re just highlighting the fact that you’ll need to compromise a little to afford some of those luxuries.
 
If you have $1.6 million when you retire, that works out to be roughly $80,000 a year you can withdraw. Obviously, some people have concerns that their retirement money will run out. So, we always do a bit of ‘backwards mapping’ with our clients – we work out the amount they think they’ll need during retirement, then plan from there.
 
Just to be clear – we’re not here to tell you how to spend your money. If you want to buy a Maserati, go for it. And if you have some spare change, we’ll take one, too! Instead of telling you what to do, we simply want to discuss 5 popular luxury items that people like to have in their retirement.

1. More than 10% of retirement savings in cash. This is actually a luxury, because although it might seem like a good thing to go, having less in your superannuation dials down the overall rate of return.
2. Owning your own home. This is a choice people make for a multitude of reasons, but the majority of retirees are actually better off financially if they rent.
3. Keeping that spare room. This goes hand in hand with the previous point. Having a bigger home just to have a spare room in case people visit may not be worth it for the use it actually gets. You could put your visitors up in a hotel, or even go on holiday with them with the money you’d save by downsizing.
4. Maintaining two cars. The first three items would cost you around $10,000 extra a year. Having a second car would be close to that too, when you consider maintenance as well as depreciation – particularly on a new car. The cost of catching an Uber or a taxi here and there could be a lot cheaper on a yearly basis.
5. Overseas holidays. Many people know this is something they want to do in retirement and actually plan for it well in advance. But there would be a huge difference in taking an overseas holiday each year as opposed to every second year. In any case, it is a luxury, and one a lot of people make trade-offs for leading up to their retirement. If a client tells us they want to travel every year, it could mean working an extra two years in order to achieve this goal. Some people are happy to do that, and some people decide they’d rather just travel less frequently, or locally rather than overseas. Australia is an amazing place – don’t discount it! We realise some people wouldn’t settle for Magnetic Island over the French Riviera, but still. It doesn’t have to be one or the other. It’s all about those trade-offs!

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Having some of these luxuries could mean the difference between needing $50,000 a year or $100,000 a year in retirement. Working out your goals is the key.