How much money you will need to live on per year when you retire depends on two key things:
1.What kind of retirement lifestyle do I want to lead?
As a starting point consider if you would like to lead a modest or comfortable lifestyle in retirement. Use the costs in the table below as a guide to how much you will need to achieve this.
- 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.
The costs in the table below assumes that you have no major liabilities and you own your own home completely.
Retirement Lifestyles - Modest vs. Comfortable
The figures in each case assume that the retirees own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated. Based on Westpac – ASFA Retirement Standard, April 2018. For more information refer to www.superannuation.asn.au
2.What assets and liabilities do you have?
These are important things to consider when planning your outgoings in retirement.
You may have assets you can sell, like an investment property, to help fund your retirement. Or you may have liabilities and expenses like a mortgage or children still living at home that you need to consider.
How much do you need to retire?
How much savings will you need when you retire to achieve the lifestyle you want?
Once you work out the sort of retirement lifestyle you would like to lead and factor in your assets and liabilities, you need to work out how much capital you will need in retirement to achieve it.
The information in the example below is a guide only to the lump sum you might need if you want a comfortable retirement lifestyle and you live to age 85.
The calculation in the example assumes that your money will stay invested in a Retirement Pension once you retire and receive an average return of 6% per annum after costs. How you invest your money in a Retirement Pension, i.e. in conservative or more growth based investment option/s, will also affect your retirement savings and therefore the income you could receive.
To work out how much savings you require, you also need to consider your life expectancy. In Australia the average life expectancy for 65 year old men is about 81 years and women about 85 years. It’s a good idea to consider your family history too, as this may also have an impact.
Estimated savings needed to get a 'Comfortable' Retirement Lifestyle until age 85 as a single or as a couple
Based on principles from ASIC, MoneySmart. Reproduced with permission.
You may be concerned that you need to have more in super than you currently have in order to have a more comfortable retirement. There are a number of ways you can improve your super – contact us to have a talk about what you could do to boost your super.
What about the age pension from the government?
Many people currently get some Age Pension after they reach 65, providing they satisfy Department of Human Services incomes and assets tests. The maximum age pension today is about $23,823 a year for singles and $35,916 a year for a couple, including the pension supplement. If you want more than this basic amount, you will need to rely on your own retirement savings.
Please note, Centrelink revises pension rates in March and September each year and the figures quoted are based on Centrelink payment rates, effective September 2018. For current figures, go to the Department of Human Services website www.humanservices.gov.au or contact the Department of Human Services on 13 23 00.
You need to also consider that the Age Pension legislation will change over time and this may mean it could be applied differently to your circumstances when you retire. You can’t rely on the rules remaining the same, so it is always a good idea to have a Super Health Check from time to time to make sure that you are still on track.
From transition to retirement and retirement planning, to superannuation investment options and retirement income stream choices, BUSSQ’s team of pension specialists is here to help. Book in to speak with a BUSSQ Financial Planner today and get your retirement sorted.