How Much Money Do I Need To Retire On?

The usual rhetorical response to this question is “how long is a piece of string?” For those of us that don’t plan for our retirement this could well be the answer. You may also be forgiven for thinking “my retirement is years away yet, why bother myself worrying about it now?” Well, whilst we can’t predict the future, we know that with some careful planning we can at least give ourselves the best opportunity of fulfilling our retirement dreams.

The reality is there are many factors that influence our financial needs in retirement. The most important being at what age we retire, how long we live for and the quality of our health during that time.

Did you know the average life expectancy for Australian men and women born from 2012 to 2014 is now 80.3 years and 84.4 years respectively1. Compare that to men and women born in 1993, (75.0 and 80.9 years), or born from 1960 to 1962 (67.9 and 74.2 years)2, and it really illustrates just how much longer we are living for now compared to our previous generations. That means we are likely to have to work for longer than our parents and grandparents did and work harder to build up a retirement nest egg. Our current economic environment of low investment yields only adds to the challenge put before us.

Australia’s ageing population also means collectively more of us will be wanting a piece of the pie in retirement. We should therefore expect a larger number of us will need to be self-funded and less reliant on government support to maintain our retirement lifestyle. As recently as 2014, 77.8% of retired Australian women and 72.4% of retired men still reported government funding as their main revenue stream1.

Another contributing factor, albeit a slightly more controllable one, is the lifestyle we are accustomed to and the lifestyle we are willing to adopt during retirement. Do we want to enjoy regular overseas holidays, eat out at restaurants every night or have a wardrobe overhaul each season? Or will we be content budgeting for the occasional holiday, home cooked meals and the simpler things in life?

Modelling from the ASFA3 shows that to live a comfortable lifestyle in retirement, a couple aged 65 will need $59,160 per annum, whilst singles will need $43,062. To maintain a modest lifestyle, couples aged 65 need $34,216 per annum and singles $23,7674. A couple’s annual cash flow of $59,160 requires a savings or investment base of approximately $1,000,0005, combined with a partial entitlement to government pension support. Note this computation relies on numerous assumptions and therefore will vary where your circumstances differ to the assumptions made.

In terms of accumulating this personal wealth, superannuation remains the most concessionally taxed environment in Australian in which to do so.

The point of this brief article is not to give you a sense of doom and gloom about your future retirement, but to hopefully inspire you to take control of your own retirement destiny, rather than “leaving it to the Gods”. Doing nothing is far worse than doing something! Whether you are in your 20’s, 30’s, 40’s or beyond, there is always some level of action you can take.

CMS Private Advisory have professionally trained taxation experts and qualified financial advisors who can help you review your superannuation affairs and make the whole process far less daunting than it otherwise may be.

1 Source: Australia Bureau of Statistics, 4025.0 – Gender Indicators, Australia, August 2016

2 Source: Australian Bureau of Statistics, 4102.0 – Australian Social Trends, 1995

3 Association of Superannuation Funds of Australia (ASFA)

4 Source: ASFA Retirement Standard, June 2016 Quarter

5 Source: Australian Securities & Investments Commission, Money Smart Retirement Planner

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