How Much Do You Need In Retirement?

June 1, 2017

Australians aged 55–64 will typically retire with a median* superannuation account of $105,900 according to a recent ABS data¹. The reason it is so low is that widespread superannuation did not come into place until the mid-1990s.

At age 64 men have, on average, more than 20 years to live and women around 23 years to live. Many people will live longer, some reaching the ripe old age of 100! The question is, ‘How do you want to spend these retirement years – living as you are accustomed to being able to extend financial support to your children, family members or church, or taking the Age Pension, adjusting your lifestyle and having to watch every cent?’

It is important to note that there is an increasing and stark gap between expectations and the reality of what is actually being saved in the form of superannuation. Most of us have high expectations as to what we want to do in our ‘retirement’, but the question of how much is enough will be different for each person and dependent upon what people wish to do in their retirement.

The ASFA Retirement Living Standard benchmarks is the annual budget needed by Australians to pay for either a comfortable or modest standard of living in the post-work years. It is updated quarterly to reflect inflation.

The research² provides detailed budgets of what singles and couples would need to spend to have either:

a modest lifestyle in retirement (better than the Age Pension, but still only able to provide for basic activities)
a more comfortable retirement lifestyle (enabling an older healthy retiree to have a broader range of leisure activities and a good standard of living).

The research examines both ‘modest’ and ‘comfortable’ budgets for a retired single person and a couple respectively. For some budget items two can live as cheaply as one, but for others costs go up with the size of the household. The result of this analysis is:

To achieve a comfortable retirement lifestyle, a couple needs an annual income of $59,971 and a single person needs $43,665.
To achieve a modest retirement lifestyle, a couple will need $34,855 each year and singles $24,250.

The reality is, however, that the single Age Pension is currently around $23,000 per year (including the Supplements) and provides a safety net at around the poverty line.

Research³ indicates that savings required at retirement for a comfortable lifestyle for a couple is $640,000 and for a single person it is $545,000. This is quite an increase from the expected median savings in superannuation stated earlier of around $105,900. The lump sums needed for a modest lifestyle are relatively low due to the fact that the base rate of the Age Pension (including the Supplements) is almost sufficient to meet the expenditure required at this budget level. Superannuation balances required to achieve a modest lifestyle for a couple is $35,000 and for a single person it is $50,000. The lump sums required in these examples assume that the retiree/s will draw down all their capital, and receive a part Age Pension.

Given the actual savings and what is required to achieve a comfortable lifestyle in retirement, it is clear that most recent retirees will need to rely on the Age Pension in their retirement. Will you?

ABS (2016) Superannuation in Australia 2003-04 to 2013-14, Cat No. 6523 Household Income and Wealth, August 2016
ASFA (2017) ASFA Retirement Standard – Detailed budget breakdown, Association of Superannuation Funds of Australia, March 2017
ASFA (2016), ASFA Retirement Standard, Association of Superannuation Funds of Australia

*median refers to the statistical measure of the middle outcome. 50 per cent of the population will have a balance above the median and 50 per cent of the population will have a balance below the median. Median super wealth balances are not skewed by very large balances, and they exclude responses from people with no super at all and is a better indication of the super wealth of the average person with super.