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Retirement: Is $70,000 a year enough?

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Will $70,000 Be Enough for a Comfortable Retirement?

The way retirees spend in retirement and their desired lifestyle significantly impact the income they’ll need. Recent figures from the Association of Superannuation Funds of Australia (ASFA) reveal the cost of a "comfortable retirement" has risen by 0.7% to record highs. But is $70,000 enough to fund such a lifestyle for a couple? The answer depends on various factors, including their lifetime income and accustomed spending habits.

Key Factors in Assessing Retirement Income Needs

When evaluating whether $70,000 suffices for retirement its important consider several elements:

  • Stages of Retirement: Retirement is typically divided into active, passive, and frail stages, each with distinct financial demands.

  • Desired Lifestyle: Your definition of ‘comfort’, including travel, dining out, or healthcare, plays a critical role.

  • Rising Costs: Inflation and increased demand for aged care due to an ageing population drive up expenses, particularly for healthcare and housing.

Data from the Australian Bureau of Statistics highlights this trend:

  • The Pensioner and Beneficiary Living Cost Index (PBLCI) rose 3.9% in 2023, reflecting the growing costs faced by pensioners.

  • Self-funded retirees experienced a 3.4% increase in living costs, underscoring the impact of inflation.

Additionally, aged care expenses are rising faster than inflation, creating further challenges for retirees managing long-term care costs.

Understanding the ASFA Retirement Standard

The ASFA Retirement Standard provides a detailed breakdown of expected expenses for "comfortable" and "modest" lifestyles for singles and couples. It assumes retirees will draw down their superannuation and receive partial Age Pension support.

  • A comfortable lifestyle includes discretionary spending on travel, dining, and other leisure activities alongside essentials like health insurance.

  • A modest lifestyle represents a step above relying solely on the Age Pension, focusing on affordability rather than luxury.

According to ASFA, this is what retirees would need…

Comment:

Looking beyond ASFA’s age-based findings, a health and activity approach may be a more relatable way to view retirement. Specifically, retirement could be broken down into three phases - active retirement, passive retirement, and supported retirement…

  1. Active Retirement:
    Characterized by good health and energy, this phase often includes travel, hobbies, and volunteering. Retirement plans should budget for leisure activities and health maintenance during these years.

  2. Passive Retirement:
    During this stage, retirees may reduce activity levels, spending more time at home and engaging in sedentary hobbies. Healthcare costs often begin to rise, requiring adjustments to financial plans.

  3. Frail or Supported Retirement:
    The final phase involves greater dependence on support services, including assisted living or home care. Expenses in this stage are driven by healthcare and long-term care needs.

At the end of the day, retirement planning shouldn’t be viewed as a one-dimensional, age-based exercise. Instead, retirees and their financial advisors need to dig deeper and accept that retirement is not linear - it evolves and it requires careful planning and the ability to cope with the numerous twists and turns ahead.

Rick Maggi CFP, Financial Advisor/Planner Perth, Westmount Financial