A common question we receive from new clients is, “How much do I need to retire?” A very valid question, and one which is easy for us to help you find the answer to. However, before we start crunching numbers, let’s take a step back and consider something else. “What kind of retirement lifestyle would you like?”
Retirement – A comfortable or moderate lifestyle?
AFSA is Australia’s peak superannuation body. Each quarter they release retirement standard benchmarks. In layman’s terms, this is the annual budget that a single person or couple would need to fund a comfortable or moderate lifestyle. AFSA also provides further detail on what each lifestyle might look like on a day-to-day basis:
| Expenditure | Comfortable Lifestyle | Moderate Lifestyle |
|---|---|---|
| Health | Top health insurance cover, doctor visits & pharmacy costs | Basis health insurance & basic gap payments |
| Phone/Data | Good broadband, computer devices and streaming services | Basic internet data & basic mobile service |
| Car | Owning a reasonable car, fully maintained and insured | Owning a cheaper, more basic and/or older car |
| Leisure | Club memberships, cinema, exhibitions, hobbies/classes | Infrequent activities. Occasional visits to the cinema |
| Home | Ongoing maintenance, kitchen/ appliances updated over 20 years | Limited budget for home repairs & appliances |
| Grooming | Regular professional haircuts | Budget haircuts |
| Utilities | Afford all utilities, switch on aircon as required. | Need to watch usage and make sacrifices |
| Dining out | Occasional restaurant, dining out, take-aways & coffee | Limited dining out at inexpensive restaurants. Infrequent take-away & coffee |
| Clothing | Replace worn out clothing & modest wardrobe updates | Limited budget to replace or update worn items |
| Travel | Annual domestic trip. Overseas trip every seven years | Annual domestic trip or a few short breaks |
You can read more about the ASFA retirement standards here
Your planned lifestyle – other factors for consideration
As you can imagine every individual, or couple has their own vision as to what a retirement lifestyle might look like. Here are some other considerations:
- Initial lump sum expenditure – It is not unusual for new retirees to spend capital on preparing for retirement, such as an updated kitchen, car, caravan, boat or motor home. However, whilst retirement ‘toys’ will provide fun in retirement, they may also incur additional ongoing expenses.
- Travel – Many of our clients would expect to travel overseas more frequently than once every seven years. Typically, COVID aside, we see clients travelling annually or semi-annually. This is generally in addition to domestic trips. This will be an additional annual cost to consider if you wish to maintain this lifestyle.
- Changing expenses – As people age, it is usual for their spending needs to change. It is likely that there is less spending on dining out and leisure, but more spending on healthcare, home support and medical expenses. Whilst maybe not such a fun outgoing, these expenses will also be part of maintaining your lifestyle at that time.
- Family – Will your retirement lifestyle include family members such as children or grandchildren? Does it include helping with school fees or is it the ability to have a holiday with your family?
- Family Home – Maintaining a large family home can be expensive. Should you consider ‘downsizing’ to a property with more manageable associated costs? Alternatively, does retaining your current home allow you to maximise your desired lifestyle?
- Age Pension – Including supplements, a single person could receive $25,155 per annum. A couple would receive $37,924 per annum. Neither figure is sufficient to meet even a moderate lifestyle.
- Taxation – How tax-effective will your retirement income be? Tax minimisation or elimination should be a key focus to ensure that your income supports your retirement.
Life expectancy
Now that you have a better idea of the lifestyle that you want in retirement. The next key consideration is how long do you expect to be retired for? What we do know that due to better public health, nutrition and medical advances, Australians are living for longer. The problem is we don’t know how long our own retirement will be for!
Life expectancy tables use data to provide an estimate for how long men and women will live. Its important to note that the tables are averages. Therefore, we would generally add a buffer of 5 years on top of an individual’s life expectancy. The table below provides some examples of life expectancy:
| Current age | Male | Female |
|---|---|---|
| 45 | 82 | 86 |
| 65 | 85 | 88 |
| 85 | 91 | 92 |
Source: Australian Institute of Health & Welfare, Deaths in Australia – Life Expectancy
A healthy retirement lifestyle
A good retirement lifestyle isn’t just about the numbers. Here are some other tips we have gleaned from our clients:
- Work at staying healthy – spend money on fun activities rather than medical costs!
- Maintain or build strong social connections.
- Have a purpose – help others by volunteering.
- Maintain an active brain – keep the grey matter turning over!
- Be grateful – focus on the positives!
- Spend quality time with family (not just babysitting for them)!
- Have a hobby or two, just for yourself.
- Mindfulness – live in the moment!
Crunching the numbers
The table below shows the income that AFSA believes is required to fund each lifestyle. For comparison, we have also included the current levels of age pension:
| Lifestyle | Comfortable lifestyle | Moderate lifestyle |
|---|---|---|
| Single person | $49,462 | $31,323 |
| Couple | $69,691 | $45,106 |
| Age pension | Single person | Couple |
|---|---|---|
| Annual amount | $25,259 | $39,090 |
Summary
As you can see, how much you need to retire depends on a wide range of factors. AFSA and on-line calculators can provide you with some idea and a range, but every retirement plan is individual. We can help you plan yours.