How much money will I need in retirement?
Few Australians enjoy a comfortable retirement. In fact, most retirees can only rely on the basic retirement benefits provided by the Age Pension. The Association of Superannuation Funds of Australia (ASFA) regularly estimates the annual income required to provide for either a modest or a comfortable lifestyle in retirement on a national basis. A modest lifestyle is slightly better than the Age Pension, but you would still only able to afford fairly basic activities while a comfortable lifestyle would enable a good standard of living, for example a reasonable car, private health insurance, leisure and travel. In September 2007 ASFA put the figures at approximately:
Situation Single Couple
Modest Lifestyle $18,742 $36,319
Comfortable Lifestyle $26,339 $48,648
Are YOU on target? Try the Australian Securities and Investments Commission's (ASIC) superannuation calculator to see if you are on target.
Yes, I’ll be able to afford a comfortable retirement. That’s great, now you need to make the most of your super. I’m not really sure. That’s okay. Most people need help to work out whether or not they can achieve their retirement goal. An IFFP financial planner can help you! I have a long way to go. You’re not alone. The good news is that there are many things you can do to improve your situation by accelerating your savings.
Of all the issues you’ll grapple with throughout your life, getting everything set up so you can enjoy a comfortable retirement must rank among potentially the most stressful. But careful planning, and some expert help along the way, can go miles towards making the process relatively simple and painless.
The $64 question in retirement planing is: how much is enough? How long is a piece of string? The amount of income you need to earn from your retirement savings depends on the lifestyle you aspire to and, to a large degree, those expectations are dictated by how much you earn while you’re working. “The amount of income you need to earn from your retirement savings depends on the lifestyle you aspire to…” As a general rule of thumb, however, the income you’ll need in order to be “comfortable” when you retire is generally reckoned to be between 65 and 70 per cent of your pre-retirement income. This figure was first set by a Senate committee looking into the adequacy of retirement savings in Australia. The figure has since been adopted by industry bodies, financial planners and the media. Of course, the higher your pre-retirement income, the higher the retirement income you’ll need. And the higher the income you need, the more capital you need to accumulate before you retire. If your income in the years before you retire is, let’s say, $100,000 a year, then a “comfortable” retirement is likely to require between $65,000 and $70,000 a year.
If you’re a male, and you retire at age 60, you can expect to live about 18 years. So a straight multiplication suggests that you’ll need 18 times $70,000 to live on in your retirement. That’s $1.26 million. The true situation is a little more complicated, and a little less daunting than that. Remember that when you stop working, your money doesn’t. Your retirement savings will continue to generate investment returns, even as you draw down your capital. So the actual amount you’ll need is somewhat less than $1.26 million. “Remember that when you stop working, your money doesn’t.” Bear in mind, also, that your living expenses tend to be greatest at the beginning of retirement, and then gradually reduce as you age. But you also need to think about age-care needs as you get older. So your retirement income needs won’t be constant from year to year. So that’s another factor that complicates the calculations. But a financial planner is an invaluable ally when it comes to working out things like this. A good planner will guide you through the options you have for generating an income once you’ve reached retirement, and help map out the best strategies to help you accumulate the assets to meet that goal.
Few Australians enjoy a comfortable retirement. In fact, most retirees can only rely on the basic retirement benefits provided by the Age Pension. The Association of Superannuation Funds of Australia (ASFA) regularly estimates the annual income required to provide for either a modest or a comfortable lifestyle in retirement on a national basis. A modest lifestyle is slightly better than the Age Pension, but you would still only able to afford fairly basic activities while a comfortable lifestyle would enable a good standard of living, for example a reasonable car, private health insurance, leisure and travel. In September 2007 ASFA put the figures at approximately:
Situation Single Couple
Modest Lifestyle $18,742 $36,319
Comfortable Lifestyle $26,339 $48,648
Are YOU on target? Try the Australian Securities and Investments Commission's (ASIC) superannuation calculator to see if you are on target.
Yes, I’ll be able to afford a comfortable retirement. That’s great, now you need to make the most of your super. I’m not really sure. That’s okay. Most people need help to work out whether or not they can achieve their retirement goal. An IFFP financial planner can help you! I have a long way to go. You’re not alone. The good news is that there are many things you can do to improve your situation by accelerating your savings.
Of all the issues you’ll grapple with throughout your life, getting everything set up so you can enjoy a comfortable retirement must rank among potentially the most stressful. But careful planning, and some expert help along the way, can go miles towards making the process relatively simple and painless.
The $64 question in retirement planing is: how much is enough? How long is a piece of string? The amount of income you need to earn from your retirement savings depends on the lifestyle you aspire to and, to a large degree, those expectations are dictated by how much you earn while you’re working. “The amount of income you need to earn from your retirement savings depends on the lifestyle you aspire to…” As a general rule of thumb, however, the income you’ll need in order to be “comfortable” when you retire is generally reckoned to be between 65 and 70 per cent of your pre-retirement income. This figure was first set by a Senate committee looking into the adequacy of retirement savings in Australia. The figure has since been adopted by industry bodies, financial planners and the media. Of course, the higher your pre-retirement income, the higher the retirement income you’ll need. And the higher the income you need, the more capital you need to accumulate before you retire. If your income in the years before you retire is, let’s say, $100,000 a year, then a “comfortable” retirement is likely to require between $65,000 and $70,000 a year.
If you’re a male, and you retire at age 60, you can expect to live about 18 years. So a straight multiplication suggests that you’ll need 18 times $70,000 to live on in your retirement. That’s $1.26 million. The true situation is a little more complicated, and a little less daunting than that. Remember that when you stop working, your money doesn’t. Your retirement savings will continue to generate investment returns, even as you draw down your capital. So the actual amount you’ll need is somewhat less than $1.26 million. “Remember that when you stop working, your money doesn’t.” Bear in mind, also, that your living expenses tend to be greatest at the beginning of retirement, and then gradually reduce as you age. But you also need to think about age-care needs as you get older. So your retirement income needs won’t be constant from year to year. So that’s another factor that complicates the calculations. But a financial planner is an invaluable ally when it comes to working out things like this. A good planner will guide you through the options you have for generating an income once you’ve reached retirement, and help map out the best strategies to help you accumulate the assets to meet that goal.