• Christine Lusher

What will retirement cost?

Updated: Jan 26, 2021

After decades of work, moving to the retirement stage of your life can be stressful, reduce the stress with financial planning advice.

How much super do I need to retire?

The challenge is to ensure your money lasts the distance. Today’s 65-year-olds can expect to live to an average age of around 85 years for men and 87 for women. Funding over 20 years’ worth of living is expensive and if you want to retire earlier you will need more capital.

Start by thinking about your future income needs.

What will retirement cost?

Your retirement spending will depend on your lifestyle, if you are married or single, whether you own your home and where you want to live. Lifestyle choices and leisure activities are different for everyone and so are the costs. It’s going to cost more if you are heading overseas every year on holiday v’s a local trip away. Retirement is not a holiday and you won’t be away on holiday’s every week! Leisure activities are essential in retirement and give enjoyment, companionship, and a weekly purpose.

Start to think about what you would like to do on a regular basis so you can ensure you can afford what is important to you. Include how often you would like to eat out, and other activities you intend to do such as golf, yoga and gym memberships and what this costs – include all this in your budget. Draft a budget if you don’t have one, after all you are officially an adult!

Many want to provide financial support to extended family members once they are retired. It’s important to address this desire early on in planning for your retirement and if you can’t afford it make it known. If you wish to leave an inheritance address what this looks like for you in your retirement planning. The ASFA Retirement Standard provides sample budgets for different households and living standards. Compare these budgets to yours to see if you need to aim higher. ASFA suggests a “comfortable lifestyle” for singles aged 65 is around $43,687 a year to live comfortably, while couples would need around $61,909.

Should you qualify, the full age pension is currently at $24,550 a year for singles and $37,013 for couples. This is a fair way off ASFA’s comfortable lifestyle, especially for retirees who are paying rent.

So, if you want to retire at age 65 on annual income of $62,000 what lump sum will you need?

Couples would need a lump sum of around $640,000 and singles would need $545,000. This assumes you earn 6% a year on your investments, draw down all your capital and receive a part age pension. Your capital will last you until around age 85.

These assumptions are simple projections and realistically rarely work out that way. Retiree’s end up needing a new car, something expensive goes wrong with the house or illness puts finances in jeopardy. But it can be used as a guide.

Bridge the retirement gap

If you have not met your retirement needs yet, start early while you still have choices.

  1. If possible delaying retirement or working part time has the double advantage of allowing you to accumulate more savings and reduce the years you need to draw on them.

  2. Top up your super by making additional super contributions up to your concessional cap of $25,000 a year. You can also make catch up concessional contributions if you have not used your cap in previous years. You may be able to make after-tax contributions of up to $100,000 a year or, subject to eligibility, $300,000 in any three-year period.

  3. If you are planning on moving house or downsizing in retirement consider contributing to super using the downsizer contributions rules.

  4. Financial planning advice pays off. Speaking with a Financial Planner can help you make positive choices for your financial future and life goals. That’s because a financial planner will help you stay on track of both your short and longer-term goals. The sooner you start planning, the sooner you will be on track to live the life you want with better peace of mind. Financial planning is a specialist profession and you should make sure that you’re getting advice from a professional financial planner who is properly licensed and qualified.

What we do best: We provide advice on and manage clients superannuation so they can spend their time on what they do best. I want my clients to enjoy their retirement with the knowledge and peace of mind that their funds are being expertly managed. Contact us if you would like to discuss your retirement planning strategy.