Supporting your retirement lifestyle
ASFA’s figures give a good starting point, a sense of what the average retirement might look like and what it would cost.
But what’s more important, is knowing how much capital you need to support the lifestyle you want—and how you can go about accumulating that capital.
A retirement calculator can help you answer these questions because it covers a whole range of factors.
- Your current and potential super savings. It takes into account how much you’ve currently saved and your future saving based on your income and ability to save extra money into super.
- Your investment choices. Increasing the return on your super savings can make a big difference to the amount of capital you retire with and your retirement lifestyle when you get there.
- Your family situation. A retirement calculator allows you to include your spouse’s income, contributions and final super balance into the calculation.
- Social Security and part-time work are two crucial ways in which many people at least partially fund their retirement. The calculator helps estimate the effect any Age Pension you are eligible for (and any work you do) has on your retirement income.
Other factors to determine how much you need to retire
There are a number of things to take into account when determining how much you need to retire.
Your age and lifespan
The age you retire can have a significant impact on how much money you have, and how much money you need in retirement. It can depend on many things such as your health, debts, investments, super balance, age you can access your super, whether you have dependants, and your retirement plans.
Keep in mind that if you're planning to retire at around age 65, it’s likely you’ll live for another 20 years or so. Men aged 65 in 2019–2021, could expect to live another 20.3 years2 (expected age of death of 85), while women could expect to live another 23 years (expected age at death of 88 years).
Your retirement goals
Having a clear idea of the type of retirement lifestyle you’re after, is a key factor in determining how much you’ll need to live on.
This may be hard to know if you’ve still got a while to go before retiring, but the sooner you start thinking about it, the sooner you can implement a plan to turn your retirement dreams into a reality.
Some of the things you might consider are:
- How often you would like to travel and the types of holidays
- Whether a sea change or tree change is part of your plan
- Downsizing – or upsizing. What are your accommodation plans in the future?
- The types and frequency of any recreational activities
- Do you intend on providing financial assistance to your family?
- What options would you like to have in relation to help and support either at home, or perhaps in a retirement village or aged care facility?
Once you’ve decided on your retirement lifestyle, you can work through the likely cost of your expenses, where your retirement income will come from, and finally—“how much do I need to live the life I want in retirement?”
Your sources of retirement income
The money you use to fund your life in retirement will likely come from a range of different sources including:
- Super: knowing how much super you have—and are likely to have in the future—is a crucial part of planning for retirement, as it generally forms a substantial part of your retirement savings
- Age Pension: depending on your circumstances, income and assets, you could be eligible for a full or part Age Pension, or alternatively, may not be eligible for government assistance at all
- Investments, savings and inheritance: you may be planning to downsize your house, sell shares or an investment property, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. Or perhaps an inheritance or the proceeds from your family’s estate may help you out in your later years.
Ways to increase your retirement savings
After using a retirement calculator, you may get an indication that there’s a shortfall between how much you’ve estimated to have and how much you’ll need in retirement. But there are steps you can do now to address the situation.
Some of these include:
- Consolidate your super into one account: bringing your super together into one fund will make it easier to manage. You may avoid paying multiple fees.
- Make extra super contributions: adding more into your super is a great way to increase your retirement savings. If you don’t exceed the cap, it can also have tax benefits too
- Review your super investment options: choose investment options that align with how much risk you’re willing to take on and how much time you have until retirement—generally the more time you have, the more risk you can afford to take on. Diversifying your portfolio across many asset classes can also help to manage risk.
How to avoid running out of money in retirement
Implementing strategies, and staying vigilant about your financial situation, can help to ensure you don’t run out of money in retirement.
Here are some strategies you could implement:
- Create a retirement budget: estimate your retirement expenses including housing, healthcare, utilities, transport, entertainment and other necessities. This will help you determine how much income you need to cover your costs (see our article on budgeting)
- Diversify your investments: maintain a diversified investment portfolio that balances risk and potential returns. A mix of shares, bonds and other assets can help manage risk while allowing for growth
- Set up a withdrawal strategy: determine a systematic way of accessing money from your retirement account. The 4% rule, for instance, suggests drawing down the minimum required repayments from your super pension and adjusting the amount for inflation in every year after
- Healthcare: account for potential healthcare costs or consider setting up a health savings account to cover any medical expenses
- Seek professional help: a financial adviser can help you integrate other factors that might make a significant difference, whether that’s your investment approach or super contributions strategy. From this knowledge they can create a personalised retirement strategy that aims to give you to the retirement lifestyle you’ve dreamed of.
Frequently Asked Questions
Can I retire at 60 with $500k?
According to the ASFA Retirement Standard, to have a ‘comfortable’ retirement, single people will need $595,000 in retirement savings, and couples will need $690,000, if they retire at age 67, assuming they receive part Age Pensions.
How much does the average Australian retire with?
There is no average retirement income for Australians. It varies depending on each person’s individual circumstances including the type of lifestyle they want to have, everyday expenses and health care costs.
How much do you need to withdraw from your pension?
You need to withdraw a minimum of 4% from an account-based pension each year if you are under age 65. This minimum withdrawal increases as you age.
