How much money do you really need to retire?

Retirement: a delightful word that conjures up images of days spent in slippers, time with family and friends, rediscovering old hobbies, taking long cruises in the Mediterranean, or just enjoying your newfound freedom.

Each person’s ideal retirement is unique, and the definition of a ‘comfortable’ retirement means something different to everyone. But how do you translate your aspirations into a tangible financial goal? Whether you envision a modest lifestyle focusing on simple pleasures or more leisure, travel and luxuries, your choice sets the foundation for your savings goal.

There are several factors to consider when determining how much money you will need to fund your retirement.

Life expectancy - How long will you be retired? 

No one knows the answer to this question. However, we do know that life expectancy in Australia has risen by over ten years since 1970 and continues to rise. The younger you are, the more savings you will need. Remember that if you plan to retire at around age 65, you’ll likely live for another 20 years. 

Men aged 65 can expect to live to 84.6 years, while women can expect to live to 87.3 years.

Did you know that, according to research by the Australian Bureau of Statistics on retirement and retirement intentions, 13% of people who retired in 2022-23 did so due to illness?

What are your retirement lifestyle expectations? 

 It is essential to understand how you want to spend your time and what kind of retirement you want to pursue. This vision will impact how much you will be required to save. Consider expenses like how often you wish to go on holiday, the hobbies you engage in, and whether you regularly purchase new clothes and health insurance.

Will you need different amounts of income depending on your stage of retirement? 

Typically, as people age, their spending habits change. Younger retirees spend more on leisure and travel pursuits. At around age 75, this begins to shift, and spending becomes more focused on assistive and medical needs. Generally, people tend to spend less as they get older.

What is considered a 'comfortable' retirement income in Australia?

According to the Association of Superannuation Funds of Australia (ASFA), you need a lump sum of $595k as a single person or $690k as a couple to comfortably retire at age 67. This is based on a yearly budget of $51,630 for an individual and $72,663 for a couple. It also assumes you own your home outright and are in reasonably good health.  

Comfortable retirement vs modest retirement  

*The fact that the same savings are required for both couples and singles reflects the impact of receiving the Age Pension.
All figures in today’s dollars using 2.75% as a deflator and an assumed investment earning rate of 6.00%. 

So, how much retirement savings do you need?

What if your version of comfortable does not match ASFA’s version of comfortable? 

If your aspirations include regular overseas travel, eating out, driving an up-to-date car, and enjoying some shopping during your post-work life, you will need a higher income than the above figures.

Moneysmart suggests aiming for 67% of your annual income to maintain your current lifestyle in retirement, assuming you have cleared your mortgage. For example, a household income of $150k should aim for $100k per year. 

So, how much superannuation would a couple need as a lump sum to retire on this income level?

Using this calculator from Moneysmart, we have provided several examples: 

Life Expectancy: 87 Years
Annual Return: 6.50% after fees.
Aged Pension Assistance Included
Rounded to the nearest $5,000
Full assumptions can be found here.

Do you have a plan in place to reach your desired post-retirement income? 

Did you know? Due to the power of compounding, nearly 50% of your final retirement benefit will likely accumulate in the last five years before retirement.

Superannuation
Superannuation is a fundamental element of retirement savings in Australia, designed to support you throughout your working life. To make the most of this system, it's important to understand its mechanics and how it can change each year. By optimising your superannuation through strategies such as increasing contributions or reviewing where to invest your funds, you can better position yourself for your future.

Investments & assets
Investments such as shares, investment properties, managed funds, ETFs, and bonds are important to your savings position. They can provide additional funds through income from dividends, selling shares for a lump sum, downsizing your home, or selling an investment property.

Age pension
Nearly 62% of Australians over the age of 67 receive either a partial or full Government Age Pension. The Age Pension is a valuable support for many retirees. This government benefit can provide a percentage of your income from retirement onwards, and eligibility depends on your age, income and assets. As mentioned above, the ASFA estimates that the Age Pension is mostly sufficient to meet a modest lifestyle IF you have a lump sum to support it of around $100k in super. This is great news for many Australians who are nearing retirement age without as much superannuation from their earlier years. 

Planning your retirement

No matter what your age or financial position is, it’s not too late to improve your circumstances or your retirement prospects. You never know – you may be able to retire right now, but don’t know it!

The path to accumulating the ideal retirement balance is different for everyone. This is why it’s essential to engage an expert adviser who can help you navigate through the numbers and avoid the many traps and pitfalls.


FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact your local RSM office.

This page has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As everyone's circumstances are different and this article doesn't take into account your personal situation, it is important that you consider the above in light of your financial situation, needs and objectives, and seek financial advice before implementing a strategy.         

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