The Number One Retirement Question

How much will you need in Retirement? This is perhaps the single most important question in terms of financial planning.  Despite what many believe, it’s possible to figure out an answer.  Here’s how you do it.

When you’re attempting to work out how much money you will require in your post-career years, a good starting point is the Australian average cost of living in retirement.

Each quarter, the Association of Superannuation Funds of Australia (ASFA) analyses the annual budget required to fund a ‘comfortable’ or ‘modest’ lifestyle during your retirement years. A modest retirement lifestyle is defined as being ‘better than the Age Pension but still only able to afford basic activities’. A comfortable retirement lifestyle enables healthy retirees to be involved in a broad range of leisure and recreational activities and to have a good standard of living.

The latest figures released, in June 2015, reveal that for a modest lifestyle a single person requires $23,662 annually and a couple requires $34,051 annually. The figures for a comfortable lifestyle rise to $42,861 for a single person and $58,784 for a couple.

This is a useful measure, but of course the cost of living will always vary depending on one’s desired lifestyle, health, interests and tastes. These numbers, for instance, assume the outright ownership of a home and the relative health of the individuals.

Of greatest concern though, is the fact that ASFA has identified that “with average superannuation balances at the time of retirement in 2011-12 are in the order of $197,000 for men and only $105,000 for women, it is clear that most recent retirees will need to substantially rely on the Age pension in their retirement.”1   Now this data is a few years old but clearly even with market increases and inflation allowed for over recent years, this will not likely cover the costs of a comfortable lifestyle for a couple. 

For the younger readers “those earning approximately $70,000 a year, balances were $38,000 for men and $29,000 for women.  Assuming a further 32 years of employment at the same salary level in real terms, these balances can be projected to grow in today’s dollars to around $440,000 for men and $422,000 for women.  However these projections are based on uninterrupted paid employment, which is not the case for many women now and for an increasing proportion of men.”2

For a couple, a comfortable lifestyle will require a lump sum of at least $640,000 at retirement, the ASFA Retirement Standard says. But if your tastes go beyond the average, or if your health deteriorates and you have increased medical costs, you will likely require even more, or risk lowering your level of lifestyle.

So how do you work out exactly what you will need in retirement? Begin by figuring out what your superannuation balance will add up to if you continue on your current course. Your financial planner will be able to help here. Alternatively, there are numerous apps and online calculators exist for such a purpose, such as ASIC’s MoneySmart calculator.

Then put together a budget of your household’s weekly, monthly and annual expenditure. How much of this will you expect to continue into retirement? School fees and mortgage repayments will perhaps no longer come into the equation. But travel, home renovations, hobbies, courses, entertainment, eating out, or other forms of expenditure, may increase.

This is where your unique desired retirement lifestyle comes into play. What is a realistic monthly or annual amount that will make this lifestyle a reality? Compare this to the ASFA Standard to find out whether you will need more or less than the average Australian.
What good is this information? It offers you a tool with which you can check you’re on track to achieve your desired retirement lifestyle. An accurate figure allows you to decide on acceptable risk levels in your investment strategies, to raise or lower regular contributions, and to enjoy your earnings whilst knowing your future is taken care of.

The greatest power an investor has is time. But without knowing the end goal it is impossible to take advantage of time by charting a goal-specific course. Figuring out the cost of your desired retirement lifestyle is the very first step in making it a reality.  Second is putting a course of action in place!


Speak to us for more information

If you would like to know more about your retirement options, give us a call.  Our advisers can give you more detailed information on the best approach for your situation.


The information contained in this material is current as at date of publication unless otherwise specified and is provided by Matrix Planning Solutions Limited ABN 45 087 470 200, AFS Licence No. 238 256 (Matrix). Any advice contained in this material is general advice only and has been prepared without taking account of any person’s objectives, financial situation or needs. Before acting on any such information, a person should consider its appropriateness, having regard to their objectives, financial situation and needs. In preparing this material, Matrix have relied on publicly available information and sources believed to be reliable. Except as otherwise stated, the information has not been independently verified by Matrix. While due care and attention has been exercised in the preparation of the material, Matrix give no representation, warranty (express or implied) as to the accuracy, completeness or reliability of the information. The information in this document is also not intended to be a complete statement or summary of the industry, markets, securities or developments referred to in the material. Any opinions expressed in this material, including as to future matters, may be subject to change. Opinions as to future matters are predictive in nature and may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from results ultimately achieved. Past performance is not an indicator of future performance.