How much do I need in retirement?
As financial advisers one of the common questions we are asked by retirees is: how much do I need to live comfortably in retirement?
The answer is difficult to quantify for most, because it depends on so many variables: How long you live, how much you spend, how much your money grows during retirement. The only quantifiable factor in this complex equation is how much it costs you to live. The Association of Superannuation Funds of Australia (ASFA) have released a ‘retirement standard to assist with helping you to quantify your retirement needs.
The ASFA Retirement Standard aims to benchmark the annual spending patterns for Australian retirees. Such information can also help individuals navigate the challenges of planning for retirement in their later years. As average life expectancies continue to increase, most older Australians will require both superannuation savings and financial support from the government to accommodate their spending needs. Knowing how much you are likely to need to spend in retirement can assist you in planning process. The ASFA retirement standard categorises retirees lifestyle needs into two categories:
A modest retirement lifestyle details expense requirements marginally above the amount provided to Age Pension recipients. It is suitable for those wishing to enjoy basic leisure activities and incorporates household expenses, clothing, living costs, transport and medical services.
A comfortable retirement lifestyle is suitable for those seeking to enjoy a broad range of leisure and recreational activities. The spending projections allow for the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, domestic and occasional international holiday travel.
Both budgets assume that the retirees own their own home outright and are in reasonable health.
A copy of the report can be found here.
Budgets for various households and living standards for those aged around 65
(June Quarter 2015, national)
| Modest Lifestyle | Comfortable Lifestyle | |||
| Single | Couple | Single | Couple | |
| Total per year | $23,662 | $34,051 | $42,861 | $58,784 |
Budgets for various households and living standards for those aged around 85
(June Quarter 2015, national)
| Modest Lifestyle | Comfortable Lifestyle | |||
| Single | Couple | Single | Couple | |
| Total per year | $23,026 | $34,214 | $38,369 | 53,825 |
As you can see the cost of living decreases ever so slightly with age. Retirees tend to spend less on eating out, lifestyle purchases and holidays with more expenses directed towards health care. You should take comfort from the fact that the retirement standard is entirely subjective, and should only serve as an indicative measure. It is not unusual to see retirees with expenditure outside these parameters.
The information in this article has been sourced from Australian Superannuation Fund Association (ASFA), Retirement Standard (2015).