How Much Do You Need In Retirement?


This is always a common question I get asked and the answer is obviously different for each client. How long you will live, what investment return you’ll achieve and what lifestyle you want are the major factors. ASIC’s Money Smart site also refers to future medical costs. With regards to lifestyle, the Association of Superannuation Funds of Australia (ASFA) have just issued a press release quantifying the annual budget required for couples and singles on a modest lifestyle and also a comfortable lifestyle. 

The ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a comfortable or modest standard of living in their post-work years. It is updated quarterly to reflect inflation, and the latest figures for the March 2014 quarter are below:

lifestyle amounts

The ASFA CEO, Pauline Vamos, says “Rising costs also highlights the importance of superannuation, to ensure people have enough money to live the lifestyle they expect in retirement, for all their post-work years.”

I couldn’t agree more with Ms Vamos, and the importance of super is likely to increase further due to the planned increase to age 70 before you can claim the aged pension. As to how much money you need in super to fund a “comfortable lifestyle” of $57,817, the answer is again different for each client: life expectancy, tolerance towards risk, sequencing risk, inflation, aged pension rules, whether you want to leave any dollars to the kids etc all play a part.

However, I shall do some calculations in order to provide you with a figure for how much a self-funded couple needs in their superannuation to have what the AFSA consider a comfortable lifestyle. The latest life expectancy tables show that a 65 year old male will live for a further 18.54 years and female 21.62 years, so I will assume a 22 year time frame. I shall also assume a return of 7.64% which is what the Australian Super Balanced Fund has averaged over the last 10 years. The result is $607,043, however if we increase expenses with an inflation level of 2.6% then this jumps to $736,459.

In reality a couple will not need to fully self fund their retirement as they will probably be entitled to a part aged pension, and once this is factored in the required super balance for the couple drops to around $510,000. I say aim higher though.

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