How much is enough to enjoy a comfortable retirement? It’s never too early or too late to start thinking about your super and what you may need to live your best life in retirement. This video discusses the types of things you need to consider when planning for the future.

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Whether retirement is just around the corner or decades down the track, it’s never too early (or too late) to start thinking about it.

One of the most common questions that Australians want to know is: “How much money will I need for retirement?”

Everyone’s retirement needs are different, so in this video we’re going to discuss the type of things you need to consider when planning for your retirement– and how much you may need.

To get an idea of what you’ll need, think about your goals and aspirations today:

For example, you might want to travel, study, start a family, buy a home or renovate your current home.

Now think about where you'd like to be a few years before you retire. For example, you may want to have paid off your mortgage, reduced your working hours, or sold your home to buy a smaller place if your children have moved out.

Finally, think about what kind of retirement you'd like. The
type of lifestyle you want to have once you've finished work will largely
dictate how much you need to save.

As a guide, if you own your own home, it’s estimated you’ll need two-thirds of your current annual income to maintain your existing lifestyle.

For example, if you earn $90,000 a year now you may need around $60,000 each year in retirement.

If you rent your home, you will need to factor in this additional cost. This could mean you will need more than two-thirds of your current annual income.

Let’s drill down a bit further to look at some current estimates of what your retirement lifestyle may cost.

The Association of Superannuation Funds of Australia (or ASFA) regularly benchmarks the kind of budget that Australians may need to fund their lifestyle during retirement. They split it into two categories: modest and comfortable. Both budgets assume that you own your own home outright and are relatively healthy.

A modest lifestyle covers fairly basic and inexpensive activities. For example, taking one holiday a year within Australia, eating out occasionally at cheap restaurants, and doing limited, inexpensive leisure activities – such as the odd trip to the movies.

A comfortable lifestyle means you should be able to go on frequent holidays, both within Australia and overseas, you can enjoy eating out at nice restaurants and not have to worry about utility costs, and you can take part in lots of leisure activities.

Which lifestyle are you aiming for? There’s no right or wrong answer – but considering this will help you determine how much you will need for your retirement.

To give you a general idea, here is how much these lifestyles may cost.

In the left column, you will see what amounts ASFA predicts is required per year for a modest lifestyle for a single person and a couple, and on the right, for a comfortable lifestyle.

 Another important factor to consider is how long your retirement money will need to last. This is based around your life expectancy.

For example, a 65-year-old man could expect to live to about 85, while a 65-year-old woman around age 87. And that’s just the average – many people live well beyond those ages.

As this graph shows, the life expectancy for Australians is constantly increasing which is great news, but it also means your retirement savings needs to last longer.

So you should plan for your income stream to cover you for at least 20 years after you've retired.

Now, let’s take a look at the types of income you can receive when you’re retired. There are three main sources:

•            Your own assets and savings

•            The Age Pension – if you’re eligible, you may receive a full or part payment from the government

•            The money you've invested in your super account

Your assets and savings includes things like shares or maybe an investment property, as well as any money you might have in the bank or term deposits. Dividends and capital gains from shares, rent from an investment property, or interest from savings may all contribute to your retirement income.

The next type of income you could receive in retirement is the age pension. You may be eligible for a part or full payment, and that can go towards your living costs. But if that’s your only source of income, your lifestyle will be much more restrictive than either the modest or comfortable lifestyles we've just looked at.

Your eligibility depends on how much income you receive from other sources such as investments and super, and how many assets you own. For example, if you have investments outside of your super, or you own property other than the home you’re living in, it’s unlikely that you’ll get the full payment – and you may not be eligible to receive any payments at all.

This table shows the maximum amount of Age Pension that singles or a couple could receive each year as at 20 March 2020.

And of course your superannuation is the other main source of retirement income.

Now, combine the total of any investments and super that you currently have to work out if you are on track for the retirement lifestyle you want. You can use our super calculators to project how much super you will have at your retirement age and also to find out how much income per year this could be expected to provide.

If these figures seem out of reach for you, don't panic. There are ways to boost your super so you can get on track to reach your retirement goals.

A good place to start is by watching our 'Boost your super' video. We explain different types of super contributions and tax-effective
strategies that you may be able to use to get your super into a better
position.

Seeking financial advice is also an important strategy that can help in achieving your retirement goals. A financial adviser will consider a range of options that can boost your super now, as well as provide advice on
the best ways to manage your money when you retire.

And remember, we’re always here to help you with any questions you have about your super.

Thanks for watching.

CFS