I wrote an article a few years ago for MYOB’s small business blog called How much do I need to retire at 60? that certainly caused some heated debate and has been viewed over 425,000 times. The comments we got on that article were amazing and eye-opening to see how people’s vision of a “budget” and “comfortable lifestyle” is so different depending on their personal circumstances.
Some of the figures used for sample retirement budgets have been updated so I thought I would provide those figures as guidance for people facing the retirement funding conundrum and not sure where to start. I have also included figures more specific to the average SMSF member and those who want to have a much more than just “comfortable” lifestyle
The latest figures released by the Association of Superannuation Funds of Australia ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a ‘comfortable’ or ‘modest’ standard of living in retirement.
Budgets for various households and living standards for those aged around 65
(March quarter 2018, national)
Modest lifestyle | Comfortable lifestyle | |||
---|---|---|---|---|
Single | Couple | Single | Couple | |
Total per year | $27,368 | $39,353 | $42,764 | $60,264 |
Budgets for various households and living standards for those aged around 85
(March quarter 2018, national)
Modest lifestyle | Comfortable lifestyle | |||
---|---|---|---|---|
Single | Couple | Single | Couple | |
Total per year | $25,841 | $36,897 | $40,636 | $56,295 |
Source ASFA Retirement Standard. The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
As you can see from the figures if you are looking at a ‘comfortable’ retirement at age 65-67 you need to consider a budget of $60,264 for a couple or $42,764 for a single person household.
In my previous article I talked about retiring at age 60 but as most people will be looking more likely at 65 as their target, I wanted to clarify what I believe you need to fund such a retirement. In my opinion a couple would need a combined superannuation and non-super investment assets balance of around $760,000 minimum and a single individual would need a balance of around $560,000. This at odds with ASFA who have increased their requirement by a whopping $130,000 but still have lower figures than mine as they believe you only need $640,000 for a couple or $545,000 as a single person.
My figures are based on No Centrelink Support. I am happy to accept ASFA are correct if you take into account some age pension but I find that many clients do not qualify for this because of non-income producing assets like holiday homes, caravans boats etc reducing their pension entitlements. Also there is an inherent risk that the now reduced Asset and Income Test limits may be reduced further in the search for more Government Budget Savings.
SMSF Members save more for a better lifestyle
So let’s get take it for granted that an SMSF member wants a bit better than just a Comfortable lifestyle. My friends at Accurium who I use to do Retirement Healthchecks for my clients came up with these figures for those looking for a better lifestyle and having at least 50% chance of sustaining it for their life expectancy. This assumes all you capital will be used in your lifetime. If you want more detail and options on having capital to pass on to your children then visit Accurium’s website to access their full report.
Spend | Level of savings needed |
ASFA Comfortable ($60,000 p.a.) | $580,000 |
SMSF typical spend ($80,000 p.a.) | $1,100,000 |
SMSF aspirational spend ($100,000 p.a.) | $1,600,000 |
Source: Accurium – Retirement Insights Vol 7
So have a look below at what the ASFA Retirement Standard includes and then add in your own preferences to find out your ideal budget and capital requirement.
The Standard includes the cost of things such as health, communication, clothing, travel and household goods.
Comfortable lifestyle | Modest lifestyle | Age Pension | |
---|---|---|---|
Single | $42,764 a year | $27,368 a year | $21,222 a year * |
Couple | $60,254 a year | $39,353 a year | $31,995 a year * |
Replace kitchen and bathroom over 20 years | No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom | No budget to fix home problems like a leaky roof | |
Better quality and larger number of household items and appliances and higher cost hairdressing | Limited number of household items and appliances and budget haircuts | Less frequent hair cuts or getting a friend to cut your hair | |
Can run air conditioning | Need to watch utility costs | Less heating in winter | |
Restaurant dining, good range & quality of food | Take out and occasional cheap restaurants | Only club special meals or inexpensive takeaway | |
Fast internet connection, big data allowance and large talk and text allowance | Limited talk and text, modest internet data allowance | Very basic phone and internet package | |
Good clothes | Reasonable clothes | Basic clothes | |
Domestic and occasional overseas holidays | One holiday in Australia or a few short breaks | Even shorter breaks or day trips in your own city | |
Top level private health insurance | Basic private health insurance, limited gap payments | No private health insurance | |
Owning a reasonable car | Owning a cheaper more basic car | No car or, if you have a car, it will be a struggle to afford repairs | |
Take part in a range of regular leisure activities | One leisure activity infrequently, some trips to the cinema or the like | Only taking part in no cost or very low cost leisure activities. Rare trips to the cinema |
Figures from March Quarter 2018.
Most people I see in my day-to-day work advising on retirement planning have a “sugar coated view” of how they want to spend their time in retirement. Many have hobbies or interests that cost very little but others who like international travel or partaking in expensive social lifestyles of hobbies often under-estimate the costs.
Another worrying trend is people borrowing in their 50’s to fund lifestyle for fear of missing out or to keep up with the Jones! Others are helping children with home deposits and losing the vital compounding interest on their savings. Many tell me they believe they can live on the Government Age Pension in retirement. Well if you can’t manage on your current wage now without borrowing then you are in for a big shock if you plan to rely on the meagre Age Pension.
I see one industry commentator saying that the savings required to live a modest lifestyle in retirement only requires a small amount of retirement savings in addition to the age pension, however that sort of budget leaves you very vulnerable to food and utility price inflation as people will have seen with rising vegetable and electricity pricing in the last few years.
When you look at these estimates of the amount capital or assets you need to achieve the lifestyle you want in retirement, it’s still important to remember that most of these work on the average life expectancy. If your family has a history of longevity or early death, then you need to make allowances accordingly.
The bottom line: It’s never too early and hopeful not too late to start planning. So if you want to see where you stand at present based on your current savings and contributions to super, then use the Retirement Planner on the ASIC’s free Money Smart website.
Once you work out you target you should consider seeing a Financial Planner to see what strategies are available to you to boost your savings such as using a Transition to Retirement Pension and Salary Sacrifice strategy to save on personal and superannuation tax and build your nest egg.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
StewieB
/ March 23, 2019Thanks. I don’t understand how you’ve calculated the spending/savings ratio, though? How does 1.6M gives 100K per year?
LikeLike
SMSF Coach - Liam Shorte
/ March 23, 2019Hi Stewie, the calculation is done by Accurium Actuaries who work out that with $1.6m you have over 80% certainty that that amount will fund $100,000 for you life expectancy but including use of your capital. This is pretty much as accurate as you can get as if you want higher degree of certainty (e.g. 90-95%) the the amount of capital required to deliver that extra certainty with a safety margin jumps to $2.5m
LikeLike