In our role of helping people prepare and plan for retirement one matter that creates interesting discussion and inevitably some interesting challenges, is how much do people need to get by once they are no longer working.
Being able to answer this question lays the foundations of how much is needed.
Determining what is needed to get by is a very personal thing; a modest living for one person may be considered a comfortable existence for someone else. This is where the challenge comes and, like our clients,there is a wide range of responses. To help provide some guidance we discuss the ASFA Retirement Standard. The ASFA Retirement Standard measures the cost of a modest or comfortable lifestyle in retirement, in dollar terms, and adjusts these costs periodically in line with the cost of living. For many, this Standard provides a clear range of what type of lifestyle that amount of money can give them in retirement.
According to the latest figures provided By ASFA, assuming you own your own home, the following amounts of money are needed:
The Basic lifestyle – the Age Pension only – $22,542 a year for a single person, or $33,982 for a couple, including pension supplement and Clean Energy Supplement.While this figure is an amount you can survive on, many Australians don’t expect to live within this level of income by choice.
Modest lifestyle – $23,662 a year or $34,051 for a couple. Receiving an after-tax income that is marginally higher than the Age Pension obviously gives you a better lifestyle than living solely on social security, but you can only afford low-cost activities. The full Age Pension income is close to overtaking the modest lifestyle for a couple, but not for a single person.
Comfortable lifestyle – $42,861 a year, or $58,784 for a couple. Living on this level of after-tax income means you can enjoy more recreational activities. Also, you can afford to purchase higher level private health insurance, higher quality household goods and travel.
Plugging in the values, with the investment return assumed at 5%, the following lump sum funds (as per ASIC Smart Money) are required:
|No Age Pension||Age Pension||No Age Pension||Age Pension|
|Comfortable||$1,100,000||at least $530,000||$800,000||at least $455,000|
Please note: does not take into account the stricter Aged Pension limits as of 1/1/2017
So, how much money is enough for your retirement? Or more importantly, have you determined the amount of superannuation and other savings that you will need to finance your retirement?
Nick Stratus – 1st March 2016, Solid Financial Advisors