One of the most common questions our clients ask us is, ‘how much money will I need to retire?’ The answer to this very important question depends on many factors. The lifestyle you want to lead and the number of years you are likely to spend in retirement are a great starting point but there are many other variables you will need to consider. Estimating how much money you’ll have when you retire depends on your current salary, super balance, assets, and any inheritances that may be coming your way. With so much to consider it makes sense to seek professional retirement planning advice.
How much do I need for a comfortable retirement?
The ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a comfortable or modest standard of living in the post-work years.
A modest lifestyle in retirement will provide for more than the Age Pension but will still only afford basic expenses. A comfortable retirement will enable a healthy retiree to partake in a range of leisure and recreational pursuits and to have a good standard of living. It will allow for things such as household goods, private health insurance, a reasonable car, nice clothes, electronic equipment, domestic and occasional international travel.
Both budgets assume that the retirees are living in their own home, mortgage free and are relatively healthy.
Another handy rule of thumb is that you will need two-thirds (67%) of your pre-retirement income to maintain the same standard of living in retirement (if you own your own home).[1]
How do you want your retirement lifestyle to look?
Everyone’s vision of retirement is unique, and it will depend on your circumstances, wants, needs and lifestyle expectations. If you are used to dining out regularly, travelling and wearing nice clothes you may wish to maintain this standard of living. Those who are happy to live a simpler lifestyle will need less money in retirement. The important thing is to budget and plan. Good advice from a financial planner can help you set goals so that your retirement income meets your needs.
What age do you plan to retire?
How old you are when you retire can have a significant impact on your retirement bank balance. It is also influenced by factors such as your health, debts, super balance, the age you can access your super, whether you have dependents, and your partner’s retirement plans.
How long will I be retired for?
Keep in mind that if you're planning to retire at around age 65, it’s likely you’ll live for another 20 years or so. Men aged 65 can expect to live to 84.6 years, while women can expect to live to 87.3 years. A good retirement plan will account for this lifespan and allow for the fact that you may well live much longer than this.
Superannuation
Knowing what your super balance is will be the first step in planning for retirement. For most people this is the substantial part of their retirement savings.
Investments, savings & inheritance
If you have plans to downsize, sell shares or other investments, or use cash from a term deposit to pay for your retirement needs this all needs to be considered. Any inheritance or proceeds from a family estate will also form part the equation.
Age pension
When you are clear on your financial circumstances and assets it is worth checking if you may be eligible for a full or part age pension. This income can also form part of retirement plan. Not everyone will be eligible for a government assistance.
A retirement calculator can be a good starting point to provide an idea of how much money you are likely to have when you retire but your circumstances will be unique. Seeking professional advice from our experienced financial planners can provide more specific projections for your retirement and ensure that all the details are looked after. Get in touch.
General Advice Warning: The information provided in this article is general in nature and does not consider your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 and Dobbrick Financial Services (Ipswich) ABN 86 100 184 521 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
[1] https://moneysmart.gov.au/grow-your-super/how-much-super-you-need
