How much do I need to retire?

We all have a vision of our perfect retirement. But whether it’s travelling around the country in a luxurious motor home, playing golf every day or spending more time with the grandkids, how do you accumulate enough to pay for your golden years?

How much do I need to live my lifestyle?

Lifestyle is a personal choice. The big question is: How much do you need to save while you’re working to pay your preferred retirement lifestyle?

A good place to start is to calculate how much you need to meet basic living costs. You could use your current expenses as a guide, but keep in mind that these may be quite different during retirement.

What about the age pension?

The age pension is designed as a safety net for those who can’t self-fund their retirement. The payment for a single person represents less than 30% of average male weekly earnings. A person receiving the base maximum single-rate age pension will receive $860.20 each fortnight, or $22,365 annually, while a couple entitled to the full rate will receive a combined amount of $1,296.80 each fortnight, or $33,716.80 annually.

This may be enough to cover basic essential expenses, but most retirees want a better standard of living and are more active in retirement than previous generations. For these people, the age pension won’t be enough. Take this for example.

Living a modest lifestyle

The Association of Superannuation Funds of Australia (AFSA) Retirement Standard provides an insight into the cost of different lifestyle options. First prepared in 2004, it benchmarks on a quarterly basis the annual budget Australians need to fund either a comfortable or a modest standard of living in retirement.

The Standard defines a modest retirement lifestyle as “better than the age pension, but still only able to afford fairly basic activities”. The June 2015 ASFA figures suggest that a single person would need $23,662 a year to achieve this, while couples would need a combined income of $34,051.

Upgrading to a comfortable lifestyle

The Standard defines a comfortable retirement as one that enables “…an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel”.

The June 2015 ASFA figures suggest that a single person would need $42,861 a year to have a comfortable lifestyle, while couples would need a combined amount of $58,784.

Obviously these figures are just a guide, and the actual amount needed to fund your preferred retirement lifestyle will depend on the choices you make about the things you want to do. Your financial adviser can help you more accurately determine the amount needed for your retirement based on your goals, needs and preferences.

How much is enough?

Looking at the figures above, it’s clearly apparent that if you want more than a basic lifestyle in retirement, you’ll need more than the age pension to live on. Your superannuation and non-superannuation savings will need to supplement the difference, and in some cases, fully fund your retirement.

The ASIC MoneySmart Retirement Planner calculator, available at www.moneysmart.gov.au, is a useful tool.

The figures generated suggest that to achieve a modest retirement, as defined by the ASFA Retirement Standard, a single person should save about $473,000, and a couple should save about $681,000. To achieve a comfortable retirement, a single person should have about $857,000 and a couple should have about $1,175,000 and the how much is enough questions is always very specific to clients personal circumstances. These are generic calculations based on a 5% return on investments.

What’s the best way to save?

Superannuation is the most tax-effective way to save for retirement. You can build your super through employer contributions (including salary sacrifice), your own contributions, spouse contributions and government co-contributions.

There are certain restrictions on superannuation contributions and withdrawals, so you may need to supplement your superannuation with other investments such as managed funds, term deposits or property.

In conclusion

Regardless of how much you need, it’s important to start planning early to ensure you have enough to retire on. We can work with you to develop strategies that suit your individual circumstances and help you to look forward to enjoying your retirement dream.

Notes:

Assumption for calculation: value is based on today’s dollars and retiring at age 65. It does not take into account the Age Pension.

Age pension figures quoted include supplements.