How Much Money Do Australians Really Need For Retirement?

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One of the best things about employment in Australia is superannuation. Under current laws, employers must pay 9.5% of your salary into an approved fund that is set aside for your retirement.

But with the age at which you can get the pension rising from 65 to 67 over the next few years, many people having larger mortgages than ever before, and life expectancy increasing, the amount of money needed to live comfortably after leaving the full-time workforce is a challenging question. So how much money do you actually need at retirement?

Before We Dive In

The information provided here is general. You should seek the advice of a registered financial planner before making investment decisions.

Also, it's important to note that a lot of the information about superannuation comes from the super industry. And it has a vested interest is getting you to invest in their funds because that's how they make money. There are many different investment tools you can use in retirement so I'd suggest not putting all your retirement eggs in the superannuation basket.

Think About The Basics

The picture of retirement painted by many super funds is one of annual overseas holidays. They often show images of luxurious retirement communities with healthy retirees paying lawn bowls, gentle games of tennis and other activities.

The reality is that you need to think about there basics first.

That means housing, bills, food and other necessities. For many retirees, their family home is a form of superannuation. So, selling up when the nest is empty and buying a smaller property leaves many people with some residual funds to live from.

So, it's possible housing costs, and therefore utility bills, are also lower than before retirement. Many super funds, when making predictions about what you need in a fund, neglect to mention these things in order to boost the amount of money you save with them, therefore boosting their fees and earnings.

What Do Experts Say?

The assumptions behind what different experts suggest are important to understand. For example, if you retire at 65, how long will you live? In general, most estimates are based on being retired for 25 years.

They also set specific annual income amounts depending on whether you're part of as couple or single.

The Association of Superannuation Funds of Australia (ASFA) offers a few different scenarios depending on how old you are now, whether you're single or a couple, and what type of lifestyle you want to live.

Moderate Lifestyle

  • Singles aged 65-85: $27,368 per year ($524.29 per week)
  • Singles aged 85 and above: $25,841 per year ($495.03 per week)
  • Couples aged 65-85: $39,353 per year ($753.88 per week)
  • Couples aged 85 and above: $36,897 per year ($706.83 per week)

Comfortable Lifestyle

  • Singles aged 65-85: $42,764 per year ($819.22 per week)
  • Singles aged 85 and above: $40,636 per year ($778.47 per week)
  • Couples aged 65-85: $60,264 per year ($1,154.49 per week)
  • Couples aged 85 and above: $56,295 per year ($1,078.45 per week)

According to the ASFA Super Guru single people will need $545,000 in retirement savings and couples will need $640,000 to have a ‘comfortable’ retirement.

That's a much lower number than what superannuation funds suggest. For example, when I put some figures into Industry SuperFunds calculator it suggested I needed an annual income of over $60,000 per year. That mean I'd need almost $1.2M in super at retirement assuming I live till I'm 90.

SuperGuide offers some interesting information. It looks at the impact of the Age Pension. For example, if you retire with no superannuation the basic age pension gives you an annual income of $34,507 today.

For a couple with an annual retirement income of $47,482, you'll need at least $325,000 in your super fund. Without the pension, that amount jumps to $1.25 million assuming you'll be retired for 25 years.

Interactive table:

The Great Unknowns

This year's Prime Minister was recently quoted as saying there is no plan to increase the retirement age beyond 67 years. But policies change and it's hard to know what the future holds for the old age pension.

Tax policies also change. There are currently benefits in diverting some of your pre-tax income (salary sacrificing) into a superannuation fund. Whether that benefit persists or how super is handled in the tax system remains the same is impossible to predict.

It's also worth thinking about whether you'll actually stop working at the mandated retirement age. For example, as a writer, I expect to work well beyond my mid-60s although I'll be reducing the amount of work I do. I love what I do and expect to keep doing it well beyond the age of 67. So, I'll still be receiving some income that will contribute to my living expenses.

What's The Magic Number?

The short answer is "as much as possible". I'm wary of relying on the pension to supplement superannuation income and, if you own your home, it's also part of the consideration assuming you sell and downsize.

For couples retiring in their mid-60s wanting to live comfortably, the experts suggest a figure between $600,000 and $700,000 will support a comfortable 25 year retirement. For singles, that reduces by about $200,000.


Comments

    I wonder how many people under the age of, say 45, will read this. As a boomer self funded retiree let me add a couple of things to the equation.

    Your marriage and relationship status will affect retirement "comfort". So will kids, etc.

    If you own your own home(s) then you're much better off because paying for someone else's retirement will have a negative impact on yours.

    Try hard not to live beyond your means - lock that minimum amount in to an annuity that pays on a regular, monthly is probably best, basis.

    It takes about two years to get out of "I'm on holidays" mode in to " I don't have to get up at all this morning" mode. Find activities that keep you motivated or go back to work :)

    Have fun - it is possible

    Last edited 08/10/18 10:42 am

    ASFA is by far the most accurate way to determine the annual living expenses of retirees, but it also makes the assumption you own your own home and have no outstanding debts.

    I must also point out your Industry Super comparison table from Rate City as it is severely misleading. As an example you indicated Hostplus' admin fee as $65 per annum. While it is correct you also need to include an additional 0.08% of the account balance.
    Someone would also need to consider what investment they are invested into. As an example, for their 'core pool' option this quickly blows out (investment fee of 0.73% and indirect costs of 0.17%). So their "$65" fee is truely a 0.98% plus $65... on a $50,000 Super balance this equates to $555 per annum! This is only one example...

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