by Darren Withers

As an Elston financial adviser who’s been helping people for over 20 years, I’d have to say “How much will I need to retire?” is probably the question I’m asked the most. Of course, how much you want, and how much you need, are two very different things.

If you’re happy to live out your retirement years with just enough to get by, a Government pension might be sufficient to meet your needs. But if you want to stay active, keep travelling and enjoying the good life, the annual income your investments will need to generate steps up significantly.

Retirees in this century expect more than their parents or grandparents did. Sitting quietly at home with a cuppa and a crossword might have been fine for past generations. But it doesn’t cut it today.

The modern retiree is quite aspirational. They seek an active life full of experiences.

Their retirement is also likely to last much longer than their parents. Census figures show that the average life expectancy of an Australian male in 1960 was just 66.6 years. By 2015, that had increased to 77 years. The ABC recently reported that Australia now has the third highest life expectancy in the world. New figures released by the Australian Bureau of Statistics (ABS) show life expectancy at birth is now 85.4 years for females and 81.3 years for males.

So, how much do you need to retire?

Would you be comfortable on $68,014 a year?

When addressing the cost of retirement, it’s important to consider the lifestyle you wish to lead. As a starting point, we often consider the ASFA Retirement Standard.  Under this measure, for a couple to have a ‘comfortable’ retirement, an amount of $68,014 pa is required. For a single person that figure is currently defined as $48,266.

As you would expect, these figures are adjusted from time to time, especially in times of inflation.

Regardless of CPI adjustments, our experience with assisting hundreds of clients to retire over the years is that many aspire to do more than what is accounted for by the ‘comfortable’ ASFA standard. For example, our clients commonly wish to travel extensively, which can easily add around $20,000 pa to the cost.

Other costs such as helping the kids, home renovations, car upgrades and health care needs should also be considered. For these active and involved retiree couples, the annual cost of retirement can easily reach $90,000 pa or more.

Does the cost of living really fall as you get older?

Experience also tells us that the cost of living doesn’t always fall that much as people age. The 2015 Intergenerational Report noted that many more Australians will now live beyond the age of 90. We are also likely to remain healthy longer, with many over 80’s enjoying active lifestyles, including travel.

In fact, the ASFA calculations show that for a retired couple aged 85 years, the cost of a comfortable retirement today is only $5,700 pa less than it would be for a 65 year old couple. A similar gap applies to single retirees.

Additionally, as more of us live into our late 80’s and 90’s, the need to fund aged care services, either at home, or in a facility increases. While there is some government funding available, the out-of-pocket costs, particularly when it comes to residential care, can be significant.

Could I get the Age Pension?

Increasingly it will be up to retirees to fund retirement themselves. While an Age Pension safety net is always likely to be there, the income it provides is far less than what most retirees seek.  At present the maximum aged pension for a couple is $40,237. This is less than two-thirds of the amount that has been estimated to provide a comfortable retirement.

While a part pension may be accessible to supplement personal savings, this cuts out completely when assets (excluding the home) reach $935,000.

How much do you need to self fund your retirement?

The question of how much investment is needed to self fund your retirement is a difficult one.  The answer will largely depend on the risk that retirees are willing to take, and accessibility to a part age pension.

One could assume that a 65 year old couple who own their home may need an income of $80,000 pa for up to 30 years.  If they can earn a return of 3.5% pa above the inflation rate, then they would need to retire with investments worth at least $1.45 million to achieve their desired retirement.

Of course, nothing is certain. So, assets above this level may be required to provide for unexpected expenses and to allow for the happy possibility that you might just end up blowing out 100 candles and get a telegram from the king.

Individual factors need to be considered

Ultimately, how much you might need will depend on a range of factors including your desired lifestyle, the legacy you want to leave, the possibility of accessing the age pension, how long you might live and your risk profile.

While it is definitely possible to live a nice life on less, many people aspire to have a retirement that is active and filled with adventure, choice and freedom. To guarantee certainty around this requires significant capital, so it’s important to set goals and start planning early.

If you would like to know more about how much you need to retire, and how to plan for that day, please reach out and we’ll be more than happy to help. Just fill in the form on this page or click here and we’ll be in touch.