How Much Super Do I Need for a Comfortable Retirement?

One of the questions we often get asked by our clients is “How much super do I need for a comfortable retirement?

The answer to this question depends on each individual’s lifestyle needs. For example, if you’re planning to do a lot of overseas travel in retirement then you would need a much larger nest egg than someone who is planning on taking holidays locally once a year. One person’s retirement income needs will differ from another, so it’s important to know what kind of lifestyle you’d like to have in retirement and work out what you need to do now, to get to your ultimate destination.

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According to ASFA (Association of Superannuation Funds of Australia) in March 2014, the annual net income required by a couple for a comfortable retirement is $57,817, assuming they own their own home. This means that you will need at least $850,000 (in today’s dollars) by the age of 65 in order to happily live until around age 85, after which your money will likely run out, assuming a 7% return each year and indexation of 3% a year on the income. For a single person, the required annual income for a comfortable retirement is estimated to be $42,254. If you’re planning on living longer than 85 (and I hope we all do), then you’ll need more than $850,000 as a nest egg. For more details on what the ASFA considers to be a ‘comfortable’ retirement please click on this link http://www.superannuation.asn.au/resources/retirement-standard

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For those relying solely on the Aged pension for their retirement, a couple will currently receive only $30,025 a year, whereas an individual would receive $19,916 (as at January 2014). There is obviously quite a difference between the Aged pension and the income level required for a comfortable retirement.

Based on ABS statistics in 2012, the life expectancy for the average male in Australia is 79.9 years of age, while the average female is expected to live until the age of 84.3. This essentially means that most people in Australia will live well past the current retirement age of 65, which is why it’s vitally important to plan ahead for your retirement nest egg.

For help in working out your income needs in retirement, please download our free budget planner and create your current budget. Then simply remove expenses which won’t be applicable in retirement, such as mortgage repayments and children’s education costs, and add expenses which might apply in retirement, such as annual golf club membership or yearly cruise. The yearly expenses in this second budget will give you pretty good starting point to work out how much income you need to have each year (in today’s dollars) to live your ‘comfortable’ retirement.

Not having a financial plan in place for your retirement is like driving a car without a roadmap – you would struggle to ever reach your destination. If you need assistance with planning for your retirement, or to see if you’re on track with your current strategy, please contact Altura Financial Planning on (02) 8776 0104 for an obligation-free appointment. We can help you build a financial roadmap for your future.