How much income do you need in retirement?

Many people will say they are dreaming of retirement, but some are not taking the necessary action to make it a reality. In fact, there are not too many people who know the answer to a straightforward question: How much income do you need in retirement?

Let’s take a look at what the Association of Superannuation Funds of Australia (sometimes known as ASFA) thinks is a reasonable amount to live on in retirement and compare it with our own experience as financial advisors. We have worked with many people who are planning for retirement and you may be surprised to see how different our number is to ASFA’s.

How much do you need to retire?

The Association of Superannuation Funds of Australia defines two retirement standards – modest and comfortable. They also have different figures for someone who is single as opposed to a couple. In this article, we will focus on couples, but if you’re interested in seeing the number for a single person please let us know.

What is a modest lifestyle in retirement?

ASFA defines a modest lifestyle as being better than just the Age Pension but still only allowing a couple to afford very basic lifestyle activities. This includes:

  • One holiday in Australia each year
  • Owning a cheap car
  • One leisure activity infrequently (e.g. going to the movies)
  • Keeping a close eye on utility costs
  • Having basic household items and appliances
  • Take out and occasional cheap restaurants
  • Budget haircuts

To live this lifestyle, ASFA has allocated a couple $39,775. If you don’t think that this is much, let’s compare ASFA’s definition of a comfortable lifestyle.

What is a comfortable lifestyle in retirement?

What does ASFA deem a comfortable retirement for a couple? It’s on that includes:

  • Domestic holidays as well as some overseas trips
  • Owning a nicer car
  • Regular involvement in leisure activities
  • Being able to use utilities without too much worry as well as running air conditioning
  • Better household items and appliances with the ability to replace them more often
  • Ability to eat out at restaurants and enjoy a good range of food
  • Being able to pay more for hairdressing

According to ASFA this lifestyle will cost a couple $60,977.

The income people are telling us they actually need in retirement

The ASFA numbers are used by many in the industry as a benchmark. We, however, have had the privilege of working with many people over the years as they’ve headed towards retirement. Generally speaking, what we’ve found is that most people who are less than five years out from retirement are aiming for a retirement income of between $70,000 to $80,000 per annum.

This doesn’t necessarily mean that the ASFA numbers are wrong. It just means that everyone’s definition of an ideal retirement is different. It is a good idea to take the time to define what your ideal retirement looks like so you can calculate how much income you will need to produce from your asset base in retirement. Once you know how much income you need in retirement, you can reverse engineer the amount of super and other assets you should be aiming for. This will help you understand whether you are on track or not.

If you feel like you are not on track or just need some help understanding how you are progressing towards retirement, feel free to contact us and we will be more than happy to help.

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General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or Sentry Advice Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

Paradigm Strategic Planning Pty Ltd is an Authorised Representative of Sentry Advice Pty Ltd AFSL 227748

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