How much is enough?

Will your money last?

As Australians are now on average living longer, superannuation needs to stretch even further to cover living expenses.  Will your money last as long as you live?

You have a 50/50 chance of living as long as your life expectancy and in some cases, you may even exceed it.  So how do you make sure you have enough money stashed away to last a lifetime?

The Australian Securities and Investment Commission (ASIC) has a useful guide that can assist you to estimate how long you will live, how much money you may need and how you can maximize your retirement planning to achieve your target.

As no-one has a reliable crystal ball, being prepared is the next best thing.

To find out if your money is likely to last as long as you do, visit www.moneysmart.gov.au.

How much is enough?

After considering the many ways you may wish to make the most of your ‘second life’ after full time work, you should have a clearer vision about your future lifestyle needs. The next – critical – question is, how much money will you need to make it a reality?

How do you calculate future financial needs?
How much will it take to fund the lifestyle you want?
How much will you need in retirement?

According to calculations from the Investment and Financial Services Association (IFSA), most Australians will need approximately 65 percent of their pre-retirement income to maintain their current lifestyle in retirement. If you have a large expense such as an overseas trip planned for your retirement, you may need even more.

Based on this 65 percent estimate, if you’re currently earning $70,000 a year, it’s estimated that you’ll need approximately $45,000 a year to maintain that lifestyle in retirement.

How much super is enough?

This is a smart question to ask early on, because the fact is that most people don’t have enough to retire on. The most recent AMP Super Adequacy Index, Australia’s largest-ever statistical analysis of Australia’s retirement readiness, found that the average annual income required in retirement will be $41,992. On average, many people will face a shortfall in their superannuation and will need to partially rely on the Age Pension to fund their retirement.

Tips for increasing your super before retirement:

If you’ve only got a few years until retirement, there are still things you can do to dramatically improve your situation. You can concentrate on maximising your super benefit now by:

- Increasing the amount you are contributing
- Consolidating your super if you have more than one plan
- Reviewing the options in which your super is invested

You should also look at your investment options outside of super and see if they are in the most tax-effective environment

How long will your money last?
And how long does it need to last?

Answering this question is easier said than done. For example, if you’re planning to retire at age 65, the research suggests that you’re likely to live for approximately another 20 years. The average Australian woman at age 65 has a life expectancy of about 86 years and the figure for Australian men is about 83 years. This is based on the 2006 life expectancy tables (ABS Feb 2007)

According to research by the IFSA, the Age Pension won’t provide nearly enough to fund the lifestyle most of us would like when we stop working. But knowing how much super you will need is different for each person - as one size doesn’t fit all.

Calculating how much you need to retire on is critical if you want to maintain your current lifestyle and continue to reach new goals. Most of us need more than just the Centrelink Age Pension to maintain our standard of living.

Why not visit the federal government’s Moneysmart site and use the retirement planner calculator to see if you have enough?