Planning is essential if you aim to be able to live comfortably at the time of retirement. That said, understanding how much you need to retire is challenging. Most Australians struggle to determine the amount required to retire comfortably. How much do you need to retire in Australia?
While there is no one-size-fits-all answer to the question, lets discuss various scenarios that can help you understand how much you will need at retirement.
Your lifestyle after retirement
The amount you will need to retire really depends on the kind of lifestyle you aspire to after your retirement. The Association of Superannuation Funds of Australia’s (ASFA) has determined yearly budgets for single and couple households (aged around 65). Their guidance is based on leading what they classify as a ‘modest’ vs. a ‘comfortable’ lifestyle.
ASFA defines a ‘comfortable’ lifestyle as one in which you can afford regular leisure activities, frequent dining out, occasional overseas trips, ownership of a ‘reasonable’ car, and premium private health insurance.
On the other hand, a ‘modest’ lifestyle has been defined as one in which a retiree occasionally indulges in leisure activities, eats at home or occasionally dines out, owns a basic car, and basic health insurance, among other things.
ASFA’s guidance on retirement budgets
To lead a ‘comfortable’ post-retirement lifestyle, as per ASFA, a single household would require $43,687 per year, while a couple household would need $61,909 per year.
On the contrary, a single household would require $27,902 per year to lead a ‘modest’ post-retirement lifestyle, while a couple household would need $40,380 per year.
You can view ASFA’s detailed benchmark reports here.
Consider your current position
Understanding your current financial position and net worth is also crucial. If you have outstanding debt or are still paying off your mortgage, you will need to factor debt into your retirement calculations. By ensuring you have a clear view of your current position (including any debt), you’ll be able to plan appropriately and determine your post-retirement needs.
Factor in your post-retirement life expectancy
As per the Australian Bureau of Statistics Life Tables, an average Australian aged 65 is expected to live to at least 90 years of age. Accordingly, you can expect to live for roughly 25 years after retirement. This means that you’ll need to plan to have sufficient finances for at least 25 years post your retirement.
Use a retirement calculator/planner
You can also use a retirement calculator/planner to get a rough idea of how much money you will need for your retirement. You will need to input figures such as your age, income, retirement age, relationship status, super balance, employer contributions, etc. However, calculations are only estimates that are based on some assumptions. You should exercise due diligence while calculating your retirement income and adjust the figures according to your situation.
How Humaniti can help
Humaniti’s mission is to help people to get more organised and plan a brighter financial future. By linking your banking and superannuation accounts, Humaniti will provide an up to date view of your net worth. In addition, you’ll be able to view your current superannuation balance and understand your outstanding debt. A clearer view of your personal financial position is crucial to budgeting and planning for retirement.
In the case of your super balance, from your dashboard you’ll be able to understand how your balance compares to other Australians like you. You’ll be able to monitor your net worth and superannuation balance over time. That can help you understand whether making additional super contributions is appropriate to your circumstances.
As an added benefit, once you have linked your accounts, Humaniti also categorises your spending so that you can understand where you are spending and identify any additional opportunities to save. Additional savings and investments can help you have a more comfortable retirement.
Calculating the amount required for retirement is different for each individual and household. The financial circumstances of each individual or family are different. The lifestyle you wish to maintain, your own financial health, your relationship status, and many other factors can collectively determine how much you would require for your retirement.
* Disclaimer – the information in this post is general only and does not constitute financial advice.