How much is enough?

One of the most common questions we get asked is how much is enough to retire?

Many studies have concluded that it is unlikely that your employer’s super contributions will be enough if you want to be a self-funded retiree in retirement.

How much extra money you should be contributing to your super depends on:

  • How long you live;
  • What type of lifestyle you want;
  • Future medical costs; and
  • What sort of legacy you want to leave to your kids.

 

ASFA’s Retirement Standard

The Association of Superannuation Funds of Australia Limited (ASFA) Retirement Standard has been developed to objectively outline the annual budget needed by the average Australian in their post-work years. It provides benchmarks for both a comfortable and modest standard of living, for both singles and couples, and is updated quarterly to reflect changes to the Consumer Price Index (CPI).

The table below will give you a rough idea of how much money you need to support a modest or comfortable retirement. It applies for people retiring at age 65 who will live to an average life expectancy of about 85, own their home outright and are relatively healthy.

A modest retirement lifestyle is considered better than the Age Pension, but still only able to afford fairly basic activities.

A comfortable retirement lifestyle enables a retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

ASFA estimates the lump sum needed to support a comfortable lifestyle for a couple is $640,000 (or $545,000 for a single person) assuming a partial Age Pension. ASFA also estimates that because a modest lifestyle is mostly met by the Age Pension the lump sum required to support it for a couple is $35,000 ($50,000 for a single person).

Source: ASFA Retirement Standard, September Quarter 2016.

 

ITL Financial Planning’s Retirement Standard

Another way to estimate how much income you will need in retirement is to assume you need 67% (two-thirds) of your income before you retire in order to maintain the same standard of living in retirement.  We find this estimate suits most of our clients who generally reside in Sydney’s North Shore/Northern Beaches and are above average income earners.

We also find that a simple way to estimate the lump sum needed upon retirement to maintain the same standard of living in retirement without eating into capital is to divide your estimated retirement income needs by 5%. Therefore, if you want the choice of a retirement income of $100,000 per annum for life (rising in line with inflation), you would need around $2,000,000 of capital.

Need help to boost your retirement savings? Through proactive and professional advice, we give you peace of mind and freedom to make choices to live your best life. Contact us now.