Working out how much is enough for your retirement depends on many factors, such as your lifestyle, future plans, and the age that you plan to retire. Furthermore, estimating how much you’ll have when you retire depends on factors such as your current salary, superannuation balance and contributions, your assets and investments, as well as the inflation rate.
The Association of Superannuation Funds of Australia (ASFA) estimates that Australians aged 65+ who own their own home and are in relatively good health, for a comfortable standard of living, will need a minimal annual cost of $47,383 as a single or $66,725 as a couple.
For Australians on above-average incomes, another rule of thumb to estimate how much money you’ll need in retirement is to assume you will require 67% of your pre-retirement income to maintain the same standard of living.
The age at which you retire will have a significant impact on how much money you will need in retirement. Other influencing factors will include your health, superannuation balance, the age when you can access your super, if you have any debts, and if you have dependents and a partner.
It’s important to consider that if you plan to retire at age 65, it’s probable that you will live for another 20 years or so. According to the Australian Institute of Health and Welfare, men aged 65 can expect to live to 85.3 years, while women can expect to live to 88 years.
The money you use to fund your life in retirement will likely come from a range of different sources including superannuation (which is likely to form a substantial part of your retirement savings), an age pension (if eligible), savings, inheritances, and income-generating investments.
Planning how much you need to save during your working years to enjoy a good standard of living in retirement can be a complex task, but on top of that, you should also factor in inflation. Inflation is the measure of a change in prices. This in turn has an impact on the cost of living which generally rises each year, reducing the amount you can buy with your money. It can also reduce the future value of income you receive from your super and other investments in retirement, which means it may make it more difficult to maintain the standard of living you had hoped for.
According to the Australian Bureau of Statistics, Australia’s average annual inflation rate over the past 25 years has been 2.4% per year, which is an overall rise in prices of 79% over the past 25 years. In effect, it means that the dollar today buys you considerably less than it did 25 years ago.
When it comes to retirement calculations, it’s important to factor in inflation and understand the term ‘today’s dollars’ and how that affects you.
If you won’t have enough to retire, there are several things you can do to get your retirement on track. You could consider increasing your super with additional contributions, postponing your retirement, adjusting your retirement lifestyle expectations, or selling assets or investments. It is important to seek professional financial advice before making any such decisions.
No matter how old you are it’s never too late to improve your financial situation and learn about how you can maximise your income in retirement. By acting sooner, you will have a better chance of achieving your ideal post-work lifestyle.
Essentially, how much money you’ll need for your retirement is unique, and will depend on your individual situation, wants, needs and lifestyle expectations. Consulting with a retirement planning professional to assist you in your retirement plans, no matter what your age, is important to a secure and comfortable future.
Contact the Financial Services team who specialises in retirement planning today.
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