Do I really need $1 million to retire?

28 June 2022

How much money do you need to retire? It’s a question most Australians ask themselves at some stage. You might’ve heard you need $1 million – it’s the figure that’s often thrown around as the financial retirement ideal. But the truth is there’s no one-size-fits-all amount. A comfortable retirement will look different for everyone.

While 7 figures in superannuation may sound great, the reality is most people heading into retirement won’t have anywhere near that amount. According to the Association of Superannuation Funds of Australia Limited (ASFA), Australians aged between 60-64 have a median balance of $178,808 for men, and $137,051 for women1.

It’s completely understandable – and can be helpful – to have a figure in mind for your retirement savings goal. What can be more important though, is having a good understanding of what a ‘comfortable retirement’ looks like to you. Once you know that, you can go about formulating how much money you need to retire.

To work out how much super you might need for retirement, here are some things to consider.

You can also register for ‘Do you need $1 million to retire?’, a free webinar, with our AustralianSuper Education team. This session will have a live Q&A. Non-members are welcome to join.

 

FREE WEBINAR - REGISTER TODAY

 

Think about the kind of lifestyle you want in retirement

The type of lifestyle you want to lead in retirement plays an important role in determining how much money you need for life after work.

For some people, retirement means slowing down and enjoying more time with loved ones. For others, it could mean new hobbies or doing all the big-ticket things you never had time for, such as travelling overseas.

If you’d like to live with the same level of comfort as you did during your working life, you may want to figure out how much you need to cover those expenses – minus any work-related costs. Or, if you’re happy to live more modestly after you retire, you may not need as much.

A ‘comfortable’ and ‘modest’ retirement will mean different things to different people, which is why it can be helpful to have a ‘standard’ to compare against.

ASFA Retirement Standard: A comfortable vs modest retirement

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard provides an estimate on how much money you need for a ‘modest’ or ‘comfortable’ retirement, for both singles and couples. It also explores what a comfortable retirement looks like, versus and modest one. The table below also compares these standards to the Government Age Pension. (Note: these estimates assume you own your home.)

Budgets for various households and living standards

  ‘Comfortable’ retirement ‘Modest’ retirement AGE PENSION-BASED RETIREMENT
What can it afford?
  • Regular leisure activities
  • Occasional restaurant meals, home-delivery meals, take-away coffee
  • Own a reasonable car
  • Budget for home improvements
  • Domestic and occasional overseas trips
  • Premium private health insurance
  • Occasional leisure activities
  • Limited meals out at inexpensive restaurants, infrequent home-delivery or take-away
  • Own a basic car
  • Budget for small home repairs
  • One annual domestic holiday or a few short breaks
  • Basic private health insurance
  • No or low-cost leisure activities
  • Inexpensive takeaway or local club special meals
  • Limited budget to own, maintain or repair a car
  • No budget for home repairs
  • Very short breaks or day trips in your city
  • No private health insurance
Single household budget
(FOR THOSE AGED 65-84)
$46,494 per year $29,632 per year $23,420 per year
(maximum basic rate*)
Couple household budget
BUDGET(FOR THOSE AGED 65-84)
$65,445 per year $42,621 per year $35,308 per year
(maximum basic rate*)
* Excludes the pension supplement and energy supplement. Services Australia. Applicable 1 July 2022 to 19 September 2022.

Source: ASFA Retirement Standard, March quarter 2022.

Know where your money goes – day-to-day expenses

Calculating how much super you need to retire will largely depend on your lifestyle and daily expenses. To work out your daily expenses, consider:

  • How much do you spend on groceries and everyday items?
  • How often do you eat out at a restaurant or cafe?
  • How many local, domestic or international holidays do you take each year?
  • Does your house need some work done?

Beyond your everyday expenses and the odd splurge, you also need to plan for unexpected costs. If you’re one of the 60% of Australian homeowners who are still paying off their mortgage, you also need to factor any outstanding debts into your budget.

 

Consider how long you'll spend in retirement

Thanks to better nutrition, public health and medical advances, Australians are living longer. For example, women who are 65 today are expected to live to 88 years old and men who are 65 are estimated to live to at least 85 years old2.

Increasing life expectancy means you may need to plan for a longer retirement, or consider transitioning into retirement.

Life expectancy 
Current Age Male Female
45 82 86
65 85 88
85 91 92

Source: Australian Institute of Health and Welfare, Deaths in Australia – Life expectancy

Life expectancy calculators use data to estimate how long you might live, so you can prepare for funding your retirement. But it's important to remember algorithms play the averages and can't predict how long you will actually live. So it may be better to estimate that you will live longer than the average when calculating your retirement income needs.

 

Know your eligibility for the Government Age Pension 

If you don’t have enough financial resources, such as super, to fund your retirement, the Age Pension can help. The Age Pension is a government payment – described as a ‘safety net’ – for people who meet the age and residency requirements. Around 62% of Australians over 65 receive a full or partial government pension3.

The amount you receive depends on a range of factors, such as your assets, how much super you have and any other income you may receive in retirement, for example rental returns.  

READ MORE: AM I ELIGIBLE FOR THE GOVERNMENT AGE PENSION

LEARN MORE ABOUT: SUPER AND THE AGE PENSION

 

Consider a transition to retirement 

For some people, completely stopping work once you hit retirement age can be a massive shock – from a lifestyle, self-worth, and financial perspective. Instead, you might like to consider easing your way into retirement. This is where a transition to retirement (TTR) strategy comes in. It allows you to access your super while you keep working. If you’ve reached your preservation age and are still working you can do this to supplement your income while working fewer hours. If you’d like to keep working full-time, you can boost your super while saving on tax.

If you’re worried you won’t have enough super saved for your ideal retirement, a TTR strategy could be an option. You can use TTR income payments to top-up your take-home pay to work less or save more.

Transition to Retirement (TTR) can be complex and isn’t suited to everyone. It’s a good idea to get financial advice before deciding if a TTR Income account is right for you.

 

Find out more: TTR strategy

 

Calculate how much money you may need to retire

To estimate how much super you might need to retire, and how your current super savings are tracking, you can use AustralianSuper’s super projection calculator. The calculator can help you work out if you have enough income for your retirement goals, and how long your super could last. It can also show you how a few changes today can make a huge difference in the long run.

TRY THE SUPER PROJECTION CALCULATOR

 
For help planning your retirement contact the AustralianSuper team.

 

Get the right advice for your retirement planning

Everyone’s retirement story is different, and it’s never too early or too late to think about life after you finish working. Whether you’re in the stages of planning or are already retired, find out how AustralianSuper can help build the retirement lifestyle that’s right for you.

Seeking help from a financial adviser can help you can make the most informed decisions about managing your super in retirement. They can also answer your questions and provide relevant information tailored to your personal circumstances and financial goals.

FIND A FINANCIAL ADVISER


Sources
:

  1. ASFA – Superannuation Statistics – May 2022 (PDF)
  2. Australian Institute of Health and Welfare, Deaths in Australia – Life expectancy (2018-2020)
  3. Based on data from the Australian Bureau of Statistics and Department of Social Services

 

 

This information may be general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about AustralianSuper, you should think about your financial requirements and refer to the relevant Product Disclosure Statement. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at australiansuper.com/tmd. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898


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