How much retirement income do you need?
- Financial Planning
Ever considered how many years you’ll spend in retirement? If we simply go with the averages and look at life expectancy, then if you are male you can expect to live to 84 and if you are female you can expect to live to 87- and these numbers are on the rise.
That’s a long time to be living without any earned income and this makes it vital to consider the kind of income levels you’ll need to generate from your retirement savings. This can then inform a reasonable estimate of how much you need to accumulate before you retire.
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So where do you start?
How much a person or couple needs in retirement is of course highly subjective. It obviously depends on the type of lifestyle you want and how financially independent you want to be.
An annual overseas holiday and a lavish lifestyle may be a goal for some, while others will be content with a more restrained and simple approach. The gap between the two can be a big one.
While the right answer for you will be a very personal decision, it can be helpful to look at resources which have taken a methodical approach to answer the question.
The peak superannuation industry body, the Australian Superannuation Funds Association (ASFA), has attempted to do just that with their well respected ‘Retirement Standard benchmark’.
How do you plan on spending your retirement?
A realistic approach
This benchmark attempts to create a well-researched picture of what types of purchases a retired person or couple may need to make to achieve a certain standard of living.
Their approach involves getting to the nitty gritty on what a retired person’s budget will need to include.
To make the benchmark relevant to different types of retirees, they have come up with two different profiles– one identified as a ‘comfortable’ retirement and the other a ‘modest’ retirement. These terms are defined as follows:
- A modest retirement lifestyle is considered better than the Age Pension, but still only able to afford fairly basic activities and occasional luxuries.
- A comfortable retirement lifestyle 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.
Both benchmarks assume that the retirees own their own home outright and are relatively healthy.
ASFA Retirement Standard provides detailed budgets of what Australians would need to spend to support their chosen lifestyles
Keeping it relevant to inflation
To make this planning resource as relevant as possible the figures for each retirement profile are updated quarterly and are adjusted for two different ages – 65 and 85.
As at the December 2015 quarter the income levels suggested by the ASFA benchmark for a 65 year old are:
- $23,797 for a modest single lifestyle
- $34,226 for a modest couple lifestyle
- $43,184 for a comfortable single lifestyle
- $59,236 for a comfortable couple lifestyle
You can view the benchmark yourself on the ASFA website. This site also provides a downloadable publication giving detail on exactly what items are included in the projected budgets.
Taking action on solid information
As you can imagine, achieving such an annual ongoing income will take a considerable level of retirement savings, combined with any age pension entitlement, in order to achieve it.
Each individual or couple will have their own skew on what they need and want in retirement and this may vary above or below the ASFA benchmark. Nonetheless, this attempt to answer an age old question provides a valuable and sobering reference for what is required and provides a platform for you to start seriously considering what you may need to do.
Visit the site yourself and talk to a financial planner if you want to review how your super is tracking toward your retirement lifestyle goals.
Do you think the ASFA benchmark is on the mark? Join the conversation below.