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It's a question that will run through all of our minds. How much superannuation do we need for a comfortable retirement? In this article we look at two types of retirement lifestyle: modest and comfortable, and how much singles and couples need.
How much do you need to live a comfortable retirement? It’s a question that, at one point or another, we’re all going to run through our minds. And the thing is, everyone’s definition of comfort is going to be different. Where an inner-city apartment coupled with international travel every year is one person’s dream lifestyle, another’s maybe a quiet home in the country.
Yet despite the subjective nature of a comfortable retirement, there are some key definitions and numbers that can be a guiding light for those unsure of how to plan their superannuation journey effectively. We’re here to break those down for you.
If you would like to discuss your options and how you might manage it from a financial perspective, please get in touch.
What is the definition of a comfortable retirement?
The Association of Superannuation Funds of Australia (ASFA) outlines two types of retirement lifestyle: modest and comfortable. For these definitions, ASFA makes the assumption that you own a family home outright (with no outstanding mortgage payments), and are in a generally good state of health.
A modest lifestyle is one where you earn more than the Australian Age Pension, but remain unable to afford most luxuries in life.
A comfortable lifestyle is one where you have the means to conduct regular leisure activities, own a decent vehicle, nice clothing, quality electronic devices and furniture, as well as undertake regular holidays – either locally or abroad.
This is by no means a lavish lifestyle, simply one where a retiree can afford most comforts they’d like to have. But what is the cost of each of these?
Modest lifestyle costs at age 65: $28,254 per year for a single person, and $40,829 per year for a couple.
Comfortable lifestyle costs at age 65: $44,412 per year for a single person, and $62,828 for a couple.
These figures decrease slightly as we age. For singles or couples at age 85, ASFA believes you need $42,470 per year as a single person to live comfortably and $58,930 for a couple.
The total cost of a comfortable retirement
According to the Australian Institute of Health and Welfare, the average life expectancy sits in the low to mid-80s – 80.5 years for men, and 84.6 years for women. To use a generous estimate for calculating a lump sum for a comfortable retirement, we will assume building superannuation for 20 years of retirement, from 65 to 85.
Multiplying out ASFA’s June 2019 Retirement Standard, we reach the following:
A single person needs $888,240 for 20 years of comfortable retirement from 65 to 85.
A couple needs $1,252,560 for 20 years of comfortable retirement from 65 to 85.
Keep in mind that this is based on averages, and each person’s definition of comfort will vary. This figure may be smaller (or larger) depending on the specific lifestyle you have in mind. To determine exactly how much you need for your own retirement, it is recommended to seek out professional financial advice. Book an appointment with an Advisor today or reach out to us.
How close are Australians to a comfortable retirement?
At a glance, these figures may seem immense. But with long-term financial advice and planning, many Australians will find it relatively easy to build a healthy superannuation balance. Again, we refer to recent ASFA figures – this time on average super balances for Australians.
2021 data indicates that most Australians currently fall short of the recommended amounts for a comfortable retirement. For those aged 60-64, average fund balances were $371,599 for men and just $251,409 for women.
While a strong and steady increase on previous years’ reports (and indicative of a relatively recent superannuation system), these numbers show that many still have a long way to go. However, a well thought out plan early in life can result in massive changes to your balance come retirement.
Boosting your superannuation for a comfortable retirement
Over time, investment returns will see superannuation balances rise massively. As an example, let’s take a conservative estimate from the above averages.
ASFA indicates that Australians between 25 and 29 have an average balance of just above $23,000-$28,000. Assuming a job that pays $70,000 per year and normal employer contributions of 9.5%, someone with $50,000 in their super at age 30 will see this rise to $483,526 by the retirement age of 67.
However, adding just 5 per cent of your salary before tax (salary sacrificing) to your super will, over time, build your balance to $648,730. Doing the same after-tax instead would build it to $677,854.
According to the Money Smarts superannuation calculator.
Bring the butterfly effect to your super for a comfortable retirement
The butterfly effect is a principle that forms part of chaos theory. It stipulates that one tiny change in a sequence (for example, a butterfly flapping its wings) can have massive implications down line (like a tornado halfway across the world).
It’s a principle that Australians would do well to remember when planning their comfortable retirement. While your lump sum goal may vary from everyone else’s, you will still need to plan well in advance to ensure you reach that goal. That starts with the smallest changes at the beginning of your savings journey.
Over time, even the smallest of contributions to your super fund will have a huge impact on what you have in retirement.
It’s a big journey – and one you shouldn’t take on alone. Professional financial advice, learning the basics, speaking with close friends and family, and always remembering the end goal are the keys to starting on the right path.
If you’re ready to start planning your comfortable retirement, no matter your age, come and start your journey with Invest Blue. We have worked with hundreds of Clients seeking advice about superannuation and retirement.
Get in touch with us, we can help you map out your coming years and build a financial plan that models out your cash flow needs in line with the things that are most important to you.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
