Planning for retirement can be daunting, especially when trying to determine how much money you will need to live comfortably. In Australia, several factors influence the amount required, including lifestyle preferences, healthcare costs, and life expectancy. Find out how much you need for a comfortable retirement.

Defining a Comfortable Retirement

The Association of Superannuation Funds of Australia (ASFA) provides guidelines on what constitutes a “comfortable” retirement. According to ASFA, a comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and maintain a good standard of living. This lifestyle includes owning a reasonable car, occasional international travel, and the ability to dine out regularly.

ASFA Retirement Standard

ASFA updates its Retirement Standard quarterly, providing estimates for both “comfortable” and “modest” retirement lifestyles. As of the latest update in May 2024, the annual income required for a comfortable retirement is:

  • Single person: Approximately $49,000 per year
  • Couple: Approximately $69,000 per year

These figures assume retirees own their home outright and are relatively healthy.

Calculating Your Retirement Needs

To estimate how much you need for a comfortable retirement, consider the following factors:

  1. Current Age and Retirement Age: Determine how many years you have until retirement and how many years you expect to be in retirement. The average life expectancy in Australia is around 82 years for men and 85 years for women.
  2. Desired Lifestyle: Reflect on the lifestyle you want in retirement. This includes your travel plans, hobbies, dining preferences, and other activities.
  3. Annual Expenses: Based on the ASFA Retirement Standard, estimate your annual living expenses. Adjust these figures according to your personal lifestyle preferences and inflation.
  4. Existing Savings and Superannuation: Assess your current superannuation balance, other savings, and investments. The average superannuation balance at retirement for Australians aged 60-64 is approximately $270,000 for men and $157,000 for women.
  5. Additional Income Sources: Consider other income sources you may have in retirement, such as rental income, part-time work, or the Age Pension. The Age Pension can provide a safety net, but it is designed to cover only basic living expenses.

Retirement Savings Target

A common rule of thumb is to aim for a retirement income of about 70% of your pre-retirement income. However, this can vary based on individual circumstances. Here’s a simplified approach to calculate your retirement savings target:

  1. Estimate Your Annual Retirement Income Needs: For a comfortable retirement, use ASFA’s estimates or adjust based on your lifestyle. For example, if you anticipate needing $50,000 per year and expect to be in retirement for 25 years, you’ll need $1.25 million.
  2. Consider Investment Returns and Inflation: Factor in the potential investment returns and inflation over your retirement period. A financial advisor can help you estimate these variables more accurately.
  3. Account for Additional Costs: Include potential healthcare costs, home maintenance, and other unexpected expenses in your calculations.

When you picture your retirement, are you anxiously tracking your expenses or are you engaging in all the activities that you wanted to, confident that your money won’t run out? Ideally, it’s the latter — but there’s no guarantee things will pan out that way.

Soaring inflation, a volatile share market, and even changing preferences can all spark worry about not having enough to last you in your post-work years. Fortunately, there’s a lot you can do to lay the groundwork for the retirement you want.

Steps to Achieve Your Retirement Goal

  1. Increase Super Contributions: Maximize your superannuation contributions to take advantage of tax benefits and compound interest. Consider salary sacrificing or making additional after-tax contributions.
  2. Review Your Investment Strategy: Ensure your superannuation is invested in a way that aligns with your risk tolerance and retirement goals. As you approach retirement, consider shifting to a more conservative investment strategy to protect your savings.
  3. Minimise Debt: Aim to pay off your mortgage and other debts before retiring to reduce your living expenses.
  4. Track Your Progress: Regularly review your retirement savings plan to ensure you are on track. Adjust your savings rate and investment strategy as needed.
  5. Seek Professional Advice: Consult with a financial advisor to develop a personalized retirement plan. They can help you navigate the complexities of superannuation, investments, and retirement income streams.

Will you take up part-time work?

Whether it’s out of necessity, boredom or some other reason, many people choose to re-enter the workforce after retiring. While there are no rules against doing this, you’ll have to be mindful of the potential tax implications, as well as how it might affect your Age Pension (if you receive one).

Under the Work Bonus rules, you can earn up to $300 from work each fortnight without it impacting your Age Pension. Anything more will be included in the income test, which along with the assets test, may reduce your entitlements.

As for your super, superannuation guarantee payments from your employer will resume, and you’ll also be able to make voluntary contributions of your own. You can keep contributing to your super until you turn 75. From the ages of 67 to 75, however, you’ll need to satisfy the work test if you intend to claim a tax deduction on any personal contributions. This involves showing that you were gainfully employed for at least 40 hours in a consecutive 30-day period within a given financial year.

Determining how much you need for a comfortable retirement in Australia requires careful planning and consideration of various factors. By understanding your desired lifestyle, estimating annual expenses, and maximizing your savings, you can work towards a financially secure and enjoyable retirement. Regularly reviewing your plan and seeking professional advice can help ensure you stay on track to meet your retirement goals.

How can we help?

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General Advice Warning

The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.

Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.

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