2018-12-14T15:00:03.400+11:00 It's the magic question, how much money will I need in retirement?

How much money will I need in retirement?

How much money will I need in retirement?

Calculate how much money you might have, how long it will last and how much you’ll need in retirement with our retirement calculators.

It’s the magic question, how much money will I need in retirement? Working out how much you’ll need to retire depends on many factors, such as your lifestyle plans for the future, and the number of years you’ll spend retired. And estimating how much you’re on track to have when you plan to retire depends on things such as your salary, super balance and assets.

By using our retirement calculators, you can get a good idea whether there’s a shortfall between the two figures and put a plan in place to address the situation.

What does a comfortable retirement look like?

The Association of Superannuation Funds of Australia (ASFA) estimates that Australians aged around 65 who own their own home and are in relatively good health will need the following amount of money each week and year in retirement1:

A modest lifestyle is considered better than living on the Age Pension, while a comfortable lifestyle means someone can afford a good standard of living, be involved in a broad range of leisure and recreational activities, and travel domestically and occasionally internationally2.

For Australians on above average incomes, another rule of thumb to estimate how much money you need in retirement is to assume you’ll need 67% (two-thirds) of your pre-retirement income in order to maintain the same standard of living3.

Lifestyle expectations

Ultimately, how much money you'll need for your own retirement is very personal and will depend on your own situation, wants, needs and lifestyle expectations. It may help to factor in your day-to-day spending habits, your recreational activities and hobbies and whether you’ll be entering retirement debt-free. The following figures are a guide taken from the ASFA retirement standard4.

How long will you work for?

The age you retire can have a significant impact on how much money you have and how much money you need in retirement. It can depend on factors such as your health, debts, super balance, age you can access your super, whether you have dependents, and your partners’ retirement plans (if you have one).

How long will you live?

Keep in mind that if you're planning to retire at around age 65 it’s likely you’ll live for another 15 to 20 years. The average Australian woman has a life expectancy of 84 years and men are expected to live to about 80 years5.

How much money will you have in retirement?

The money you use to fund your life in retirement will likely come from a range of different sources.

Superannuation

Knowing your super balance is a crucial part of planning for retirement, as it's likely to form a substantial part of your retirement savings.

The Age Pension

Depending on your circumstances and assets, you could be eligible for a full or part Age Pension, or you may not be eligible for government assistance at all.

Investments, savings and inheritance

You may be planning to downsize your house, sell an investment property or some shares, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. Or perhaps an inheritance or the proceeds from your family’s estate may help you out in your later years.

How our retirement calculators can help

Meet Mac. He’s 51, married and planning to retire at age 65.

To work out how much he might need in retirement, he tries our retirement needs calculator. Mac is hoping for a comfortable standard of living in retirement, and our calculator estimates this will cost him $1,154.49 a week – or $60,033 a year. He’s also planning on buying a new car and doing some travelling once retired, and thinks he’ll need $40,000 for these one-off expenses. Based on a life expectancy of 81 years, our retirement needs calculator estimates he’ll need a total of $993,473 to fund his retirement.

So how much might he have in retirement and how long is his money likely to last, based on his current and expected financial situation? Mac uses AMP’s retirement simulator to find out. Mac currently has $172,000 in superannuation invested in a balanced investment option, an annual pre-tax salary of $82,000, shares worth $20,000 and the couple own their family home. Based on this information, our retirement simulator calculates he’ll retire with savings of $294,944. Based on his expected expenditure in retirement outlined above, our retirement simulator estimates his money will only last until age 71, leaving him with a funding shortfall of 10 years in retirement.

Next steps

If, like Mac, you’re facing a shortfall in retirement, there are several things you can do to get your retirement on track. You could consider boosting your super through additional contributions, delaying your retirement, adjusting your retirement lifestyle expectations, or selling other assets. 

Retirement needs calculator

How much might you need in retirement?

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1 Association of Superannuation Funds of Australia (ASFA) Retirement Standard March 2018.
2 Association of Superannuation Funds of Australia (ASFA) Retirement Standard.
3 ASIC Moneysmart, How much super is enough?
4 Association of Superannuation Funds of Australia (ASFA) Retirement Standard March 2018.
5 Australian Government Actuary, Life Tables 2010-12.

 

 

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