Photography: Alana Landsberry. Getty images.
At a glance
- There’s no one-size-fits-all retirement figure: the amount you’ll need depends on your lifestyle, your home ownership and the retirement you hope to enjoy.
- Owning your home can make a big difference: homeowners typically need less superannuation than renters, as housing costs have a significant impact on retirement expenses.
- ASFA and Super Consumers Australia use different benchmarks. Our finance expert and editor of Money Matters, Effie Zahos, weighs in on the question.
We hear so much about what we should be doing to plan for retirement – build investments, grow super, pay off the mortgage. Yet very few people have any idea about how much they really need in retirement.
That’s amazing when you think about it, because we could enjoy 20 or 30 years after our working lives end.
Part of the problem is that every expert seems to have a different idea of how much you’ll need. Some say that you should have enough savings to provide an income equal to 70%-80% of your final salary.
Others say you should have $15 saved for each $1 of annual income you want in retirement. In other words, you’ll need $750,000 stashed away to have a yearly income of $50,000. There are even suggestions that we need a minimum of $1 million to afford a decent retirement.
What ASFA says
One guide that’s often quoted is the retirement standard published by the Association of Superannuation Funds of Australia (ASFA). It estimates that a couple hoping for a ‘comfortable’ retirement will need $730,000 in savings. Whereas, a single person will need $630,000. That assumes you own your house outright at retirement. If you’re renting or still have a mortgage, it’s a different story. This equates to an annual income of $77,375 for couples and $54,840 for singles. But what does a comfortable retirement actually look like?
ASFA says it includes top-level private health cover, regular medical and pharmaceutical costs, and running a reliable car with fuel, insurance and servicing. It also factors in ongoing home maintenance, repairs and replacement of major appliances. Plus, it includes full use of utilities, including heating and cooling when needed. Internet, mobile and streaming services are also included.
On top of the essentials, it allows for an active lifestyle – including leisure activities such as gym memberships or classes, eating out and holidays (typically domestic travel each year with the occasional overseas trip). Everyday personal spending, such as clothing and regular professional hairdressing, is also factored in.
ASFA has also crunched the numbers for a ‘modest’ lifestyle. This is considered better than the Age Pension but still only allows for the basics.
That means basic health insurance, owning a cheaper, older, more basic car, needing to keep a close watch on all utility costs and make sacrifices, and a limited budget for home repairs and updating household appliances.
Spending on leisure is more occasional than routine – think infrequent dining out or takeaways and more limited entertainment options.
Just how much you’ll need in super for a modest retirement depends on whether you own your home or rent. For homeowners, around $110,000 in super for singles and $120,000 for couples will be enough. For renters, those figures jump to roughly $340,000 for singles and $385,000 for couples.
This assumes renting a modest one- or two-bedroom apartment in a middle-to-outer-ring suburb. The Age Pension is doing a lot of the work here, effectively becoming the backbone of retirement income.
What Super Consumers Australia says
Consumer advocacy organisation Super Consumers Australia (SCA) has its own estimates based on three different levels of spending – low, medium or high. It uses real spending data from the Australian Bureau of Statistics on how much Australians are actually spending in retirement, then builds its estimates from there. The low figure reflects the spending of the bottom third of retirees, the medium the middle third, and the high the top third.
SCA found that a single person with a medium level of spending will need about $322,000 in super, and a couple will need about $432,000. That’s based on spending around $44,000 a year for singles or $64,000 a year for couples, assuming you own your home.
The Age Pension does most of the heavy lifting in this scenario – 67-70% of retirement income comes from the pension, with the rest coming from super.
And what if you rent in retirement?
SCA has also done the calculations of spending levels and savings targets for people who rent in retirement. It found a single retiree who rents and is aiming for a medium level of spending of $63,000 a year would need $659,000 in super. A couple would need $786,000 to cover annual spending of $84,000 a year.
To have the same standard of living as a person who owns their home in retirement, renters will need something like twice as much super.
This article originally appeared in Money Matters by The Australian Women’s Weekly. Purchase here.
Information is correct at the time of writing. Any advice provided is general in nature and does not take your personal circumstances into consideration. Readers should seek their own financial advice.
