How Much Do I Need to Retire?

How much do you really need to retire? Do you need to own your home outright? Do you need millions in super? We will discuss below.

The amount of money you need to retire will vary significantly, but will mainly depend on:

  • How high your expenses are in retirement
  • What kind of lifestyle you want to live

Obviously, the more money you spend, the more money you will need. Therefore, if you want a comfortable or even extravagant lifestyle in retirement, you will need a pretty large sum in your super. It will also depend on how long you live for, which with most people living into their eighties you will need that money to last for at least 20 years. The positive note is that even if you run out of super, you won’t go completely without. The age pension will cover your very basic expenses, but won’t do much more than that.

The Age Pension

The age pension is currently only accessible once you are over the age of 67. There are also a number of other factors that may allow or disqualify you from receiving the age pension. These include your residency, your income (from super etc), and your assets. The maximum amount you can receive in a fortnight from the pension currently is $967.50 for a single, and $1458.00 for a couple. If you earn over $180 a fortnight as a single, for every dollar over that your pension will decrease by 50c. For couples this number is $320.

The age pension means everyone will have enough money to live off of, but for less than $1000 a fortnight it isn’t really enough to live well or comfortably. This is where your super then comes in.

How Much Do I Need in My Super?

While you have the age pension to fall back on, it really isn’t a great option for a comfortable retirement. If you want to live a similar lifestyle to what you are now, you are going to need to fund that lifestyle from your superannuation. For a quick way to work out what you may need, if you know what your expenses are now, you could just multiply that by twenty to get a rough estimate of the lump sum you can aim for.

So if your expenses are $30,000 per year, multiplying that by 20 would give you an amount of $600,000. This obviously doesn’t take into consideration any investment returns, fees, increased living costs etc so while it won’t be exact, it is a great starting point. There are plenty of calculators online that can help you to work out what kind of money you will need in retirement, which I have attached down the bottom under resources.

A good rule of thumb is if you own your home, you’ll need two thirds of your pre-retirement income to maintain the same standard of living in retirement. The ASFA provides a retirement standard, as follows:

ASFA Retirement StandardComfortable LifestyleModest Lifestyle
Single$44,818 per year
$859 per week
$28,514 per year
$546 per week
Couple$63,352 per year
$1,214 per week
$41,170 per year
$789 per year
A lump sum for a single comfortable lifestyle is $545,000, and a sum for a couple looking for a comfortable retirement is 640,000.

If you don’t own your home, you will have additional expenses like rent, which can considerably increase your expenses. You will need to take this into account when working out how much super you need.

In my own opinion, I’d say the more super you have the better. I am definitely not aiming for a number in particular, but as I continue to get older will continue to contribute more and more towards my retirement. The earlier you start the better, as time really helps the compounding process. As long as you are putting money aside now for things like property, investments, or super, you are probably in a great place and will have enough to retire! If you are still living pay check to pay check, don’t even know what super company you are with, and have $0.01 to your name, unless you want to live off the pension, you may want to get your finances sorted!

Resources

Retirement Planner Calculator- Money Smart

https://moneysmart.gov.au/retirement-income/retirement-planner

https://moneysmart.gov.au/grow-your-super/how-much-super-you-need

Super contributions optimiser calculator

https://moneysmart.gov.au/grow-your-super/super-contributions-optimiser

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