The perennial question of ‘how much do I need to retire?’ crops up from time to time for those who are nearing the twilight of their careers and need to start thinking about how much they will need in retirement. Or is this an issue only confined to older people?
Recent statistics from the Tax Office revealed that 11% of newly established self managed superannuation funds had members who were under the age of 35 – highlighting the importance younger generations are placing on their retirement savings and the control they want to exercise in managing their finances in the aftermath of the global financial crisis.
What Retirement Lifestyle Do You Hope For?
The exact amount of how much you will need in your retirement however depends on whether you intend to lead a ‘modest’ retirement lifestyle or a ‘comfortable’ one.
The Association of Superannuation Funds of Australia (ASFA) releases a quarterly retirement standard to gauge how much an average Australian would need to fund either a ‘modest’ or ‘comfortable’ standard of living in post-work years. Figures are adjusted quarterly to reflect inflation. The tables below, released in May 2012, formulates how much an individual or a couple would need per week to live a ‘modest’ or ‘comfortable’ retirement lifestyle.
Modest Retirement Lifestyle
The ASFA defines a ‘modest’ retirement lifestyle to be one that is better than subsisting on the Age Pension but is still only able to allow its recipients to enjoy fairly basic activities.
Comfortable Retirement Lifestyle
On the other hand, a ‘comfortable’ retirement lifestyle enables a healthy retiree to be involved in a broad range of leisure and recreational activities and have a good standard of living.
|Modest - Single||Modest - Couple||Comfortable - Single||Comfortable - Couple|
|Total per year||$21,946||$31,643||$40,297||$55,080|
|Housing– ongoing only||$58.58||$56.23||$67.89||$78.70|
|Household goods and services||$25.80||$34.97||$72.56||$85.00|
|Total per week||$420.87||$606.85||$772.81||$1,056.32|
The figures above assume retiree(s) own their own home and are relatively healthy.
The difference between the ‘modest’ and ‘comfortable’ budgets is in actual fact quite vast.
Individuals or couples living on the ‘comfortable’ budget will be able to splash out on luxuries such as updating their kitchen or bathroom at some stage, eating out, private health insurance at the top rate and being able to entertain family and friends at home.
The ‘modest’ lifestyle, on the other hand, is said to be a standard of living below what most Australians would be used to during their working lives.
Living Longer and Super Guarantee Insufficient
The issue of how much you will need in retirement has gained more currency in recent times with the increase in life expectancy. In 1901, only 4% of Australians were aged 65 or over whereas an Australian Bureau of Statistics (ABS) survey in 2010 found that the proportion of people aged 65 or over had risen to 13.5%. The ratio is expected to increase to 23% in 2041.
The current 9% superannuation guarantee that most individuals receive kick-starts the retirement savings of many, but as empirical studies show, it is simply not enough – even taking into account that the superannuation guarantee (SG) will gradually increase to 12% under the government’s new incentive.
For instance, an ASFA survey found that an individual earning a wage of $50,000 would accumulate an average of $244,000 in superannuation – provided they were a member of a superannuation fund for 30 years and the SG was increased to 12% for the entirety of their working life. However, the amount they would need for a comfortable lifestyle is $430,000 – more than a $190,000 discrepancy.
The ASFA Retirement Standard is another way to find out how much you will need to spend in retirement for the lifestyle you aspire to, depending on your domestic arrangements and in which state or territory you live. It is vital that you start planning ahead, capitalising on the tax concessions the government offers to make more contributions into your superannuation and devise ways in which you can increase your income over the long term.