How much do I need to retire?

We often get asked this question, and our friends at Elston have created an article to provide an answer.

One of the most popular Google searches is “How much money is enough to retire?” It’s a good question. So, what’s the answer? Half a million? One million? If only it were that simple.

There are so many factors to consider, and what’s right for you might not be right for someone else.

The other thing you should know is that how much you want and how much you need are actually two very different things.

If you’re happy to live out your retirement years with just enough to get by, a Government pension might be sufficient to meet your needs. However, if you want to stay active, continue travelling, and enjoy the good life, the annual income your investments will need to generate increases significantly.

Retirees in this century expect more than their parents or grandparents did. Sitting quietly at home with a cuppa and a crossword might have been fine for past generations. However, it doesn’t suffice today.

By the time you stop working, you will probably be what is sometimes referred to as ‘a modern retiree.’ You’ll be quite aspirational, looking to enjoy an active life full of experiences.

Your retirement is also likely to last much longer. The Australian Institute of Health and Welfare figures show that the average life expectancy of an Australian male in 1960 was just 67.9 years. By 2015, that had increased to 80.5 years.* The Census recently reported that Australia now has the fourth-highest life expectancy in the world. New figures released by the Australian Bureau of Statistics (ABS) show life expectancy at birth is now 85.1 years for females and 81.1 years for males.*

So, how much do you need to save for retirement?

Would you be comfortable on $75,319 a year?

When considering the cost of retirement, it’s essential to think about the lifestyle you want to lead. As a starting point, we often feel the ASFA Retirement Standard.  Under this measure, for a couple aged 65-84 to have a ‘comfortable’ retirement, an amount of $75,319 pa is required.  For a single person, that figure is currently defined as $53,289*.

As you would expect, these figures are adjusted periodically, especially during periods of inflation.

Regardless of CPI adjustments, our experience with assisting clients is that many aspire to do more than what is accounted for by the ‘comfortable’ ASFA standard. For example, our clients commonly wish to travel extensively, which can easily add around $20,000 pa to the cost.

Other costs, such as helping the kids, home renovations, car upgrades, and healthcare needs, should also be considered. For these active and involved retiree couples, the annual cost of retirement can easily reach $90,000 pa or more.

Does the cost of living really fall as you get older?

Experience also tells us that the cost of living doesn’t always decrease significantly as people age. The 2015 Intergenerational Report noted that many more Australians will now live beyond the age of 90*. We are also likely to remain healthy longer, with many over 80s enjoying active lifestyles, including travel.

In fact, the ASFA calculations show that for a retired couple aged 85 years, the cost of a comfortable retirement today is only $5,184 pa, less than it would be for a couple aged 65-84. A similar gap applies to single retirees.

Additionally, as more of us live into our late 80s and 90s, the need to fund aged care services, whether at home or in a facility, increases.  Although some government funding is available, the out-of-pocket costs, particularly for residential care, can be substantial.

Could I get the Age Pension?

Increasingly, it will be up to retirees to fund their retirement themselves. While an Age Pension safety net is always likely to be there, the income it provides is far less than what most retirees seek.  Currently, the maximum aged pension for a couple aged 64-85 is approximately $46,202 per year*. This is less than two-thirds of the amount estimated to provide a comfortable retirement.

While a part pension may be accessible to supplement personal savings, this option is eliminated when assets (excluding the home) reach $1,074,000*.

How much do you need to self-fund your retirement?

The question of how much investment is needed to self-fund your retirement is a difficult one.  The answer will largely depend on the risk that retirees are willing to take, and their accessibility to a part-age pension.

One could assume that a 65-year-old couple who own their home may need an income of $80,000 pa for up to 30 years.  If they can earn a return of 3.5% pa above the inflation rate, then they would need to retire with investments worth at least $1.45 million to achieve their desired retirement.

Of course, nothing is specific. So, assets above this level may be required to provide for unexpected expenses and to allow for the happy possibility that you might end up blowing out 100 candles and get a telegram from the king.

Individual factors need to be considered

Ultimately, how much you might need will depend on a range of factors, including your desired lifestyle, the legacy you want to leave, the possibility of accessing the age pension, how long you might live, and your risk profile.

While it is definitely possible to live a comfortable life on less, many people aspire to have an active and adventurous retirement filled with choice and freedom.

Let's Talk

Anthony Mazza

Director

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We proudly partner with Elston, one of the largest

privately owned and operated financial services companies in Australia, currently managing over $7 billion in assets, making them one of Australia’s largest providers of Managed Account Solutions.