Dream retirement

We all have a vision of our perfect retirement. But whether it’s travelling around the country in a luxurious motor home, playing golf every day or spending more time with the grandkids, how do you accumulate enough to pay for your golden years?

How much do I need?

Lifestyle is a personal choice. The big question is: how much do you need to save while you are working to pay for your preferred retirement lifestyle? A good place to start is to calculate how much you need to meet basic living costs. You could use your current expenses as a guide, but keep in mind that these might be quite different during retirement.

What about the age pension?

The age pension is designed as a safety net for those who cannot self-fund their retirement.

A person receiving the base maximum single-rate age pension will receive $916.30 each fortnight, or $23,823.80 annually, while a couple entitled to the full rate will receive a combined amount of $1,381.40 each fortnight, or $35,916.40 annually.

This might be enough to cover basic essential expenses, but most retirees want a better standard of living and are more active in retirement than previous generations. For these people, the age pension won’t be enough.

Living a modest lifestyle

The Association of Superannuation Funds of Australia, ASFA, Retirement Standard provides an insight into the cost of different lifestyle options. First prepared in 2004, it benchmarks on a quarterly basis the annual budget Australians need to fund either a comfortable or a modest standard of living in retirement. The standard defines a modest retirement lifestyle as ‘better than the age pension, but still only able to afford fairly basic activities’.

The June 2018 ASFA figures suggest that a single person would need $27,425 a year to achieve this, while couples would need a combined income of $39,442.

Upgrading

The standard defines a comfortable retirement as one that enables ‘…an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel’.

The September 2018 ASFA figures suggest that a single person would need $42,953 a year to have a comfortable lifestyle, while couples would need a combined amount of $60,604.

Obviously these figures are just a guide, and the actual amount needed to fund your preferred retirement lifestyle will depend on the choices you make about the things you want to do.

What’s the best way to save?

If you want more than a basic lifestyle in retirement, you’ll need more than the age pension to live on. Your superannuation and non-superannuation savings will need to supplement the difference. Superannuation is the most tax-effective way to save for retirement. You can build your super through employer contributions, including salary sacrifice, your own contributions, spouse contributions and government co-contributions.

In conclusion

Regardless of how much you need, it’s important to start planning early to ensure you have enough to retire on. Your financial adviser can work with you to develop strategies that suit your individual circumstances and help you to look forward to enjoying your retirement dream.