How much money will I need in retirement?

This is the perennial question and the one that keeps lots of financial advisers in a job and many over 50s up late at night. Our visions, or fears about retirement are often driven by this question.

One answer is that everyone is different and there’s no “one size fits all” figure. While I lean towards this belief, the reality is that a lot of smart people have done extensive research and produced figures which are generally accepted as a reasonable guide for most people.

According to the Association of Superannuation Funds of Australia’s Retirement Standard, to have a ‘comfortable’ retirement, single people will need $545,000 in retirement savings, and couples will need $640,000. You can use this guide to estimate how much money you’ll need to have a ‘comfortable’ or ‘modest’ retirement… These figures are updated four times a year to take into consideration the rising price of items like food and utility bills, as well as changing lifestyle expectations and spending habits.

Comfortable Lifestyle

Single: $42,764 per year

Couple: $60,624 per year

Modest Lifestyle

Single: $27,368 per year

Couple: $39,353 per year

Age Pension

Single: $21,222 per year *

Couple: $31,995 per year *

*These age pension figures assume that you own your own home, with no mortgage and no major debts.

As you can see from the above figures, there’s not a huge difference between a “modest” lifestyle and what someone on the full pension would receive.

For the above figures to make some sense, we need to have definitions for both a “modest” and a “comfortable” lifestyle and here they are –
Modest Lifestyle – as you can see a modest lifestyle only allows for the basics. It would be a simple lifestyle and does not allow for any extras such as major food and leisure costs, travel or other non-essential spending on things like alcohol and gifts for family and friends.

Comfortable Lifestyle – allows for a slightly more comfortable lifestyle in retirement and covers a wider range of leisure activities and provides an average standard of living. It could include things like owning a reasonable car and upgrading it from time to time, having private health insurance, buying alcohol, gifts and the occasional overseas trip.
A Comfortable Lifestyle may not provide the same lifestyle you are familiar with if you come from a two income household. You may need to consider ways of generating more income per year to accommodate the lifestyle you have enjoyed in the past and become used to.

We have said before that organising your finances in retirement so that you maximise your age pension payments and dividends from investments while minimising tax, is no simple task. Most people need some expert assistance to get the balance right. One of the unfortunate side effects of the Banking Royal Commission is that the reputation of the entire financial planning industry has been trashed and many people are reluctant to see a financial planner. A good financial planner should be able to save you more money than you pay in fees.

If you are approaching retirement or have left full time work in the last year or two, our advice is to talk to an accountant, financial planner or someone who is competent in this area and organise a realistic budget and a basic financial plan. The “she’ll be right” strategy could cost you a lot of money in the long term.
If your investments or super fund are not going to give you enough, according to the above figures, it’s not the end of the world. There are lots of ways to stretch your money further. Continuing to work for a few more years – either full or part time is one obvious solution.

Remember it’s now common for people to continue working in one form or another after they retire from their career. Many people now start new businesses in a field which interests them. The internet makes this a much easier task.
There are many more creative solutions to stretch you income out there. In a future article we’ll list some of them.

Posted in Articles.