How much do I need to retire? That is a question that every Australian needs to be able to answer at some point in time.
Is it an easy question to answer? No
What do the experts say?
The Association of Superannuation Funds of Australia (ASFA) estimates that a couple will need $744,000 (today’s dollars, assuming retirement age of 65) in super to retire comfortably. Now – the question worth asking is “what does comfortably” mean? Is comfortable having enough to live quietly at home? Is it having a family trip overseas once a year? Is it buying that car you have loved all your life? ASFA has tried to define what different lifestyles will look like in retirement:
|Activities||Comfortable lifestyle||Modest lifestyle||Aged pension (New rules)|
|Travel||One annual holiday in Australia||One or two short breaks in Australia near where you live||Even shorter breaks or day trips in your own city|
|Dine out||Regularly eat out at restaurants. Good range and quality of food||Cheaper and less food than comfortable standard||Only club special meals or inexpensive takeaways|
|Leisure Activities||Take part in a range of regular leisure activities||Take part in one paid leisure activity infrequently||Low cost activities|
|Private health insurance||Yes||Yes||No|
Are you serious?
The average 40 year old couple in Australia will probably only have around $200,000 in super and it seems like that reaching enough super to retire comfortably will take another 50 years to achieve.
While it may not be easy – there are a few things you can do today boost your retirement nest egg (other than winning Powerball) without too much sacrifice to the life you are living today.
Start today because time is an asset. Sit down and start planning for your retirement it’s not too late. Otherwise, you will face a significant change in life style and a huge short fall in retirement.
To illustrate the point think of Jack, who starts savings at 40 years old and Jo who starts the same savings plan at 55 years old. They contribute $200 a month and achieve a return of 7%:
At age 67, when they both retire, Jack has saved 15% of his required savings for retirement while Jo has saved only 5% (adjusting for inflation). Huge difference isn’t it?
Make sure your super is working hard
- Know your super fees – A small change in fees can make a huge difference in retirement – (we take at in depth look at this here)
- Right investment mix – make sure your super is in the right investment option for your situation.
- According to statistics in 2011-12, 50% of 65 years old females are expected to live until 87 years old or beyond and;
- 50% of 65 years old males are projected to live until 84 or older
You also need to be able to stretch that $744,000 (or other mount) over 20+ years. This can involve some careful budgeting as well as careful investing.
See a financial planer
The truth of it is that planning and saving for retirement is very difficult to do alone. We also know that seeing a financial planner and paying $5,000 a year for the privilege might not be possible. That is one of the reasons we are launching Plenty – we feel that quality financial planning shouldn’t just be the privilege of the 5% who can afford it but rather for those who need it most. Find out about our free retirement planning.
The information contained on this page is of a general nature and may not be appropriate for your personal circumstances. You should obtain personal financial advice before acting on this information.