How much is enough?

One of the age-old questions asked by those facing retirement is “how much money do I need to ensure that I can live the retirement I have always dreamed of”?

Unfortunately, the answer is not so clear-cut and will depend on a number of factors, including:

1. What sort of lifestyle would you like to have?
2. Will you be eligible to receive an age pension from the government?
3. How long does the money need to last?
4. What is your appetite for risk when it comes to investing?
5. Do you wish to leave money for the next generation?

The Association of Superannuation Funds of Australia (ASFA) conducts regular research into the costs of living in retirement. They publish budgets for a “comfortable” and a “modest” retirement lifestyle each quarter.

For the June 2014 quarter, the annual costs of living are:

 Modest lifestyle   Comfortable lifestyle
 Single  $23,363  $42,433
 Couple  $33,664  $58,128

A modest lifestyle does not require a significant level of additional savings, as the full rate of age pension will almost cover the costs of living. In fact, the ASFA suggests that to fund a modest lifestyle in retirement, assuming all debts have been eliminated, a single person will require savings of around $50,000 while a couple will need to have a lump sum available of around $35,000.

However, if you are more attracted to a comfortable lifestyle in retirement, you will need a lump sum of approximately $430,000 if you are a single person, and $510,000 if you are a couple. Retirees with lump sums approaching these amounts will not be eligible for the full age pension but the estimated lump sums assume access to at least a part age pension.

For those with a more ambitious retirement lifestyle in mind, the budget increases. And as savings increase to fund the desired lifestyle, access to the age pension reduces to a point where the amount of capital required will disqualify you from receiving any age pension.

If your retirement lifestyle budget is such that the age pension is out of reach, you are part of an exclusive group. You are a “self-funded” retiree.

If you are in your early to mid-60s and aspire to being a self-funded retiree, you will need savings of around 15 to 17 times your first year’s retirement income, in order to generate an indexed income stream for life. Putting this in perspective, if you would like an income of $100,000 in your first year of retirement and would like to maintain this on an indexed basis to keep pace with inflation, you will need a lump sum of between $1,500,000 and $1,700,000.

Managing income in retirement is a challenge for many people. Getting the right advice, early enough, is one of the keys to ensuring that you are best placed to realise your retirement dream.

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2 Comments
  • Marc Kratochvil
    October 21, 2014

    Great initiative Mark and Peter look forward to being part of it.
    Attended the Challenger’s Retirement Masterclass last week and received much insight into how big this part of our industry will be going forward.
    Re: Blog, I think there is a typo… should it be $350,000 and $500,000? … ASFA suggests etc and the article has savings of $35,000 and $50,000 for couples!
    Also unable to tweet from email link, comes back with error message
    See you all tomorrow

    • Peter Kelly
      October 24, 2014

      Hi there Marc,

      In our recent blog we mentioned that the savings required to provide a “modest” retirement lifestyle were $50,000 for a single person, and only $35,000 for a couple. Despite logic suggesting that these figures should be reversed, this is not the case. The research conducted by ASFA rightly suggests that a modest lifestyle will almost be covered by the full rate of age pension. Accordingly, only a small amount of additional savings is required to generate sufficient income to meet the shortfall between the age pension and the modest lifestyle budget. You can Tweet and share blog posts by clicking on the bird symbol at the end of each post, as long as you’re signed into your Twitter account. If this doesn’t work, try copying and pasting the blog link into your Twitter post.

      Thanks, PK.

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