How much do I need to retire?

As the cost of living and retiring continues to rise, not knowing what your financial future holds can be a worrying thought. That’s why it’s crucial to start conversations with your spouse around how much money you might need to retire comfortably.

A financial plan is a must

There’s been a long-standing trend of Australians working well into their 60s and 70s, and a report by the Australian Institute of Health and Welfare has confirmed this is set to continue as our retirement plans change.1

According to Older Australians at a Glance, Australians aged 65 and over have a workforce participation rate of 13% (17% for men and 10% for women) – a substantial rise compared to just 8% still working in 2006 (12% for men and 4% for women). There’s no denying that either by choice or necessity, the retirement age seems to be creeping closer to 70.1

According to the Australia Bureau of Statistics, back in 2004 only 8% of the population aged 45 and over signalled their intention to work until they were 70. Compare this to the 20% who now say they will work well into their late 60s.2

The Association of Superannuation Funds of Australia (ASFA) has a guide for those retiring at 65, based on an average life expectancy of 85 years and the assumption that they own their home. For couples wanting to live comfortably, ASFA suggests annual living costs will be $60,264 (or $1,154 a week), while a modest retirement could be enjoyed for just $39,353 a year (or $754 a week). Singles can expect to spend up to $42,764 for a comfortable retirement or $27,368 for a modest one.3

ASFA estimates the lump sum needed to support a comfortable lifestyle for a couple is $640,000, or $545,000 for a single person, assuming a partial age pension3. However, there are many factors to consider when figuring out your individual sum for retirement.

6 factors to help determine your lump-sum figure for retirement

1. Your lifespan

How long you live for is a huge factor when determining how much money you’ll need for retirement. There’s no clear way to predict your lifespan, so factoring this in can be tricky. However, it’s wise to think positively and plan for a longer, not shorter, life.

2. Lifestyle expectations in retirement

If you’ve lived a modest life before retirement and are happy to continue doing so, then an average lump sum may suffice. However, if you’re excited to start travelling with your newfound freedom, be prepared to put away a more sizeable portion for your retirement.

3. Relationship status

Retiring as a couple can have significant financial benefits, particularly if you both have similar spending habits. For singles, your budget might require a little more tweaking, but the bonus is you only have to worry about your own spending and lifestyle ambitions.

4. Future medical costs

Your health is your wealth, and while maintaining an active and healthy lifestyle can help prevent serious illness, sometimes accidents and unforeseen tragedies befall us. It’s wise to be mindful of any pre-existing ailments or hereditary conditions that might incur increased healthcare costs in retirement.

5. Changes in legislation

You can’t plan for changes in government or legislation, but it’s something to keep in mind when considering the size of your lump-sum savings. Changes to pension or superannuation polices usually aren’t effective immediately, which means you’ll have time to make financial adjustments or arrangements in advance. Make sure you keep up to date with any relevant industry news or announcements which may affect your retirement plans.

6. Pension and superannuation

Figuring out what other income streams will be available to you upon retirement is crucial in helping you determine the sum you want to live on. As seniors become more savvy with their finances, there’s a range of ways they can use their super to get a guaranteed income annually or take advantage of investment options.

3 tips to saving money for retirement

1. Set realistic weekly goals

Not only will you feel excited watching your bank balance grow, this will spur you on to save more. The key is to keep goals simple and achievable. Set up a worksheet on your computer or a whiteboard on your fridge to track your success.

2. Cut back on unnecessary expenses

Forgoing dinner out every second week or making a picnic lunch instead of buying it might seem a bit drastic, but if it means a few more luxuries when you’re older, it will be worth it. Write down a list of everything to buy for a week, and eliminate any unnecessary expenses.

3. Switch service providers

You may be surprised at how much you could save by changing utility or car insurance providers. Also make sure it’s not costing you more to pay quarterly or annually

It’s never too late to look into your general household finances – the key is to get ahead before you retire. Some older Australians who own property might consider Home & Contents Insurance as a way to protect their most valuable asset during retirement.

You can also use our Home Insurance Contents Calculator to estimate the cost of replacing your possessions.

This information is general only and does not consider your circumstance. You should seek professional advice for information tailored to your needs.