How much do you really need to retire?

09th Apr, 2021 | Articles

In this article:
By Lyndsey Douglas One of the main goals of wealth management is to set yourself up for a comfortable retirement.

The notion that we could all stop working early and live within our means is largely a fairy tale; many people have to continue in the workforce well beyond retirement age.

Sound financial planning and goal setting are more often than not needed to get yourself to a comfortable place with your money, and it should start as early as possible. However, the ANZ Financial Literacy Report identified a steadily decreasing percentage of people that had actually identified a specific figure they needed to ease into retirement.

So how much do you actually need to get out of the workforce without stress?

Picking your lifestyle

The Association of Superannuation Funds of Australia (ASFA) releases its Retirement Standard every quarter, which gives an indication of how much money people need to retire. It is split between modest and comfortable lifestyles, as well as for couples and people retiring on their own.

While it is subject to change every few months, the general outline gives people an excellent idea of the costs of living in retirement. For people around age 65: 

  • A single person living modestly needs around $24,000 per year,
  • A couple living modestly needs about $34,000 per year,
  • A single person living comfortably needs about $43,000 per year,
  • A couple living comfortably needs about $59,000 per year.

Critically, the estimations assume that the retiree owns their own home.

Closer to age 85, ASFA says the cost of a comfortable retirement declines. As you can see, depending on your lifestyle, you will have a wildly variable financial planning goal for your retirement. It also depends on how long you expect retirement to last as well – the cost of a comfortable lifestyle for several decades can stretch into the millions.

But how do you make sure you are covered for this?

Average superannuation balances at the time of retirement (assumed to be between 60 to 64 years of age) in 2013/2014 of $292,500 for men and $138,150 for women, meaning many recent retirees will need to substantially rely on the Age Pension in their retirement.

Careful wealth management for retirement

Everybody will have a different strategy that suits their financial situation.

There are many ways you can start generating wealth for retirement, and everybody will have a different strategy that suits their financial situation. That’s where having someone like a Yellow Brick Road local representative on hand can be useful – we’re well-versed in helping people develop the right wealth management plan for themselves.

Beyond this, there are many steps people take to build their funds for later life:

  • Investing with a superannuation provider,
  • Using a home loan to buy property, and building equity,
  • Securing the age pension,
  • Making capital growth or share-based investments.

These are only a few methods, and they can be particularly complicated. Each has its own benefits and risks – for example, you’ll pay less tax on money invested in super, but if it’s withdrawn before age 60 you may have to pay more.

Accounting for a rainy day

It can also pay dividends to have an emergency fund.

As well as having enough to live on for retirement, it can also pay dividends to have an emergency fund, or at least provisions in place for unexpected changes. The Australian Securities and Investments Commission encourages people to factor in adjustments to tax legislation, fluctuations in economic markets and even big changes to your life as events that can derail a retirement strategy.

Judging by the ASFA figures listed above, you might need as much as half a million dollars for a comfortable retirement as a couple over the course of ten years. When you’re already in the process of saving for a home loan or a holiday, this kind of thing can seem a world away, but it always pays to start preparing early.

Get in touch with a local representative from Yellow Brick Road if you want to go over your options for developing a wealth management strategy to get ahead on retirement today!