You may dream about overseas holidays, home renovations or simply spending more time with your friends and family in retirement. However, the reality is that many people’s savings are unlikely to match their retirement expectations unless they take action.
When you retire, your superannuation, asset and other investments are your lifeline. You no longer have a regular salary coming in and you rely on these savings to fund your day-to-day living expenses. This, along with the increasing cost of goods and services, means that retirement can be a daunting prospect for many.
So how much will you need? It’s difficult to know exactly how much you’ll need to fund your retirement but, the Association of Superannuation Funds of Australia (ASFA) attempts to provide a clearer picture of what this may look like.
Firstly, how much are you likely to spend?
The ASFA Retirement Standard provides a picture of how a modest lifestyle compares to a comfortable lifestyle and how much you’re likely to spend to maintain each of these two standards of living.
A comfortable lifestyle includes extra items that are considered to be ‘comforts’, such as updating the kitchen or bathroom, eating out from time-to-time, entertaining at home, having private health insurance at the top rate, enjoying an occasional overseas holiday and being able to afford to buy nice clothes and gifts.
The ASFA figures in table 1 estimate that, for a couple to maintain a modest lifestyle in retirement, they’ll likely spend around $761 per week compared to a couple who wish to live a comfortable lifestyle who are likely to spend almost double that, at around $1,168 per week.
But remember, a comfortable retirement isn’t a luxurious retirement. For example, the comfortable retirement figures for a couple only allow an amount of $271 per week for leisure and that includes saving for holidays.
Also, both weekly budgets assume that the home is owned outright so it doesn’t include the cost of rent or mortgage repayments.
Table 1: Weekly spend – modest versus comfortable lifestyle
Source: ASFA Retirement Standard, December 2018
Note: Single calculations are based on a female who is relatively healthy and owns her own home.
What about the age pension?
As shown in table 2, if you’re relying on the age pension and, like most of us, are planning on a comfortable lifestyle in retirement, you’ll have a gap of 366.72 per week ($829.82 - $463.10).
Table 2: Current maximum Centrelink age pension amounts
Source: Centrelink, March 2019
How much do you need to save?
That’s the question on everyone’s mind. The ASFA Retirement Standard suggests the lump sum amount required for a single person to support a comfortable lifestyle is just over half a million dollars. Don’t forget, this is on top of your principal home.
Table 3: Lump sums required
If you compare the amounts in table 3 with the superannuation lump sum amounts in table 4, you’ll see that there’s a gap. For example, a 35 year old earning $100,000 pa, receiving super contributions of approximately 9 per cent for 30 years, is unlikely to meet the lump sum bench mark for a comfortable retirement.
However, if the same 35 year old takes action now and starts contributing an extra $3000 per year to super (ie an extra 3 per cent per year making the total contribution amount 12 per cent) they could reach or even exceed the current benchmark set by ASFA.
Source: ASFA Retirement Standard, December 2018
Note: assumes receipt of part age pension
Table 4: Superannuation lump sums at rate of salary
Note: Investment earnings taxed at current rates. Lump sum retirement benefits are estimates calculated after 30 years in a taxed fund.
If you would like to know if your retirement plans are on track feel free to contact me at Bridges Sunshine Coast.
Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.
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