Retirement savings check-up

Retirement Checkup

Just how much is needed to finance an acceptable standard of living in retirement?

As post-Budget debates continue involving retirement income – including eligibility for the age pension and super’s concessional tax treatment – it is crucial for individuals not to lose sight of this crucial question.

Once an understanding is gained about how much is ideally needed, saving for retirement should hopefully become more purposeful. And once such a retirement target is set, discussions about how to try to meet that target may become more meaningful.

The latest quarterly ASFA retirement standard report – published by the Association of Superannuation Funds of Australia and released this month – estimates that a “comfortable” standard of living would cost a single person $42,254 a year or a couple, $57,817.

By contrast, the researchers calculate that a “modest” standard of living would cost a single person $23,283 a year or a couple, $33,509.

The calculations are based on the assumption that the retirees own their home.

The matter of what constitutes a “modest” and “comfortable” living standard is, of course, highly debatable with much depending upon personal circumstances and expectations.

A key point to keep in mind is that voluntary retirement savings – in addition to compulsory contributions and the age pension – are essential for a “comfortable” standard of living. This reality, emphasised in ASFA’s research, underlines the importance of super and the need to save consistently over the long term.

What are “modest” and “comfortable” lifestyles, according to ASFA’s definitions? Its researchers write: “A modest retirement lifestyle is considered better than the age pension but still only able to afford fairly basic activities.

“A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities…” But this standard of living is far from extravagant.

One of the most interesting aspects of this research is the calculation that a couple seeking a “comfortable” standard of living in retirement would need a joint super balance of about $510,000 to achieve this in today’s money, in addition to receiving a part age pension. And a single retiree would need about $430,000, again in addition to the pension.

Yet ASFA calculates that the $510,000 figure could not be reached even if a person earning $100,000 a year had contributions of, say, 12% of salary paid into super for 30 years.

Quality superannuation calculators can provide a useful insight into how your retirement savings are fairing. See, for example, Vanguard’s Superannuation retirement calculator.

And a financial planner can provide an assessment of the state of your super and suggest ways to boost your savings.

Written by Robin Bowerman, Principal, Market Strategy and Communications at Vanguard Australia.

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