How much will I need to retire?
How much money you’ll need in retirement depends on the type of lifestyle you wish to lead.
For some people, retirement means more time to spend on hobbies like reading and gardening and visiting family and friends. For others, it means a new car and regular overseas travel.
Given the increase in life expectancy for men and women and our healthier lifestyles, you could expect to spend 20 years or more in retirement, depending on the age you stop working.
It is important to consider what your expenses will be in retirement so that you can develop a budget that meets your lifestyle needs.
You will also need to consider the effect of inflation and the number of years that you will need to support yourself in retirement.
A qualified financial planner can help you answer these questions and take these factors into account when deciding how much you need in retirement.
The modest budget
The 'modest budget' allows for the basics but very little else. For example, both eating out and entertaining at home are very restricted and no overseas travel is possible.
The extra expenditure associated with a shift from a modest lifestyle to a comfortable lifestyle in retirement adds a lot to enjoyment, comfort, style, holiday travel, health insurance cover, and the ability to more fully participate in modern Australian society.
At the modest budget level, many retirees would not be able to participate in a range of sport and social activities that involve out-of-pocket expenses of various sorts.
The comfortable budget
The 'comfortable budget' allows for entertaining at home on a fortnightly basis, seven glasses of wine (or equivalent refreshment) a week and eating out three times a week at a club restaurant or once a week at a more expensive restaurant.
It also includes approx. $40 a week or so per person for expenditure on items such as drinks at the club, some gambling on lottery tickets or the like, tobacco purchases (if a smoker) as well as the purchase of magazines, compact discs and DVDs allowing greater enjoyment of printed material, music and movies.
Your retirement lifestyle
The following table is based on research conducted by ASFA and Westpac in August 2004 and updated in March 2007 which assessed the amount of income required to meet a retired couple's needs, for both a modest and a comfortable retirement, in the major capital cities.
Income requirements for a couple
| |
Modest lifestyle |
Comfortable lifestyle |
| Annual expenditure |
$25,780 pa per couple($494.41 per week) |
$47,766 pa per couple$916.07 per week |
| Age pension |
$23,353.20 pa per couple($898.20 per fortnight) |
|
To have a comfortable lifestyle, research shows that retired couples need an income of around $47,766 a year. This assumes that the retired couple owns their home.
The modest lifestyle requires an income of $25,780 per annum per couple.
In comparison, the Age pension pays couples only $23,353.20 per annum and a single person $13,980.20 per annum. Additional payments and supplements are also available if you qualify as an age pensioner.
Is this enough to provide you with the type of retirement you have been dreaming about?
