Amount needed for retirement is less than you think, says analyst

Trying to estimate how much is needed for retirement is tricky, but if you own your home then the amount needed may be less than you think.

The question, ‘How much do I need to retire?’, is a complex one, but one that is asked repeatedly by those nearing the end of their working lives.

There are persistent responses from some quarters that you’ll need at least $1 million to maintain a comfortable standard of living.

Read: Why retirement planning must be personal

The Association of Superannuation Funds of Australia (AFSA) says that to maintain a comfortable lifestyle, a couple will need to spend $63,352 per year and singles will need to spend $44,818.

The AFSA amounts are based on an annual drawdown rate of 4 per cent from a rough balance at retirement of $550,000 – a figure very few actually have.

In the latest YourLifeChoices Retirement Affordability Index, Morningstar director of manager research ratings – Australia Annika Bradley wrote that that estimate was too high and would result in most people running out of money.

Read: Advocacy group calls for cap on superannuation balances

Analysis from consumer advocacy group Super Consumers Australia (SCA) says the ASFA estimates of the balance required at retirement are much higher than what’s needed for a comfortable retirement, especially if you own your home.

Using Australia Bureau of Statistics (ABS) data, SCA has determined that single retirees who own their home and receive an Age Pension could maintain a modest lifestyle with just $70,000 in super. This would amount to a fortnightly spend of $1077.

Aiming for a slightly higher standard of living, spending $1423 per fortnight in retirement would see the balance needed jump to $259,000. The retirement period was determined as age 65 to 90.

“We heard repeatedly in the research that people had grossly inflated ideas of what they needed to retire,” says SCA director Xavier O’Halloran.

Read: Retirees better prepared for retirement than ever – or are they?

“People chasing inappropriate targets can end up with a much lower standard of living if they over save or don’t spend down as much as they can afford in retirement. Having credible targets, based on actual need, means people can confidently spend and get on with enjoying their retirement.”

Currently, around 84 per cent of retirees in Australia own their home. But that statistic has been steadily declining over the past two decades.

Mr O’Halloran says the figures apply only to homeowners, and that retirees who rent or are paying off a mortgage will be at a much greater financial disadvantage.

“For those renting in retirement, the system is currently failing to deliver adequate outcomes,” he says.

“This group faces high rates of financial hardship and income poverty. Renters in retirement need more than just consumer guidance, with housing affordability the root cause of the problem for this group.”

Nicola Beswick, senior financial adviser at FMD, said the answer to how much someone needs in retirement is very personal and that anyone considering retirement or recently retired needs to do their homework.

“There’s no black and white answer,” she told The New Daily.

“It all depends on what people want to do in their retirement.”

YourLifeChoices estimates, based on the December quarter cost-of-living increases, show that a well-off couple (couple homeowners with private income) will spend almost $80,000 per year to maintain their lifestyle. A constrained couple (homeowners on a full or part Age Pension) will spend at least $46,000.

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Brad Lockyer
Brad Lockyer
Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.
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