Feel like retiring but not sure when you'll be able to? It helps to know if you'll have enough savings to provide an income that will give you the lifestyle you want in retirement.

The retirement age myth

We often hear about retirement being at age 60 or even age 65 (when you can receive the Age Pension) but, there is no set retirement age in Australia. Technically, you can retire whenever you’re ready. The challenge is being able to afford to retire and this often comes down to how much you have in your super

Understanding super

Super is money put aside while you’re working that will be used to fund your lifestyle when you retire. Your super grows over time and you can access it when you retire and reach your preservation age – which ranges from 55 to 60 depending on the year you were born1 or when you reach age 65.

While many Australians rely at least partially on the Age Pension in retirement, it’s not a lot of money and is unlikely to support the lifestyle most of us want in retirement.

If you want to travel overseas, drive a reasonable car and regularly eat out in retirement, you’ll need to have enough put aside in your super to pay for a higher standard of living.

How much will you need?

The Association of Superannuation Funds of Australia (ASFA) Retirement Standard estimates an individual requires $27,368 a year to live modestly and $42,764 to live comfortably in retirement. For couples, these amounts are $39,353 and $60,264 respectively.2

A couple retiring at age 65 and owning their own home would need a lump sum of around $640,000 to pay for a comfortable lifestyle in retirement while an individual would need about $545,0002. At these savings levels, a part Age Pension could still be used to help meet your income needs (depending on your other assets).

Without a part Age Pension to rely on, retirees would need significantly higher savings to support a comfortable lifestyle. Individuals would need about $740,000 and couples would around $1.01 million or more.3     

When can you retire?

To figure out when you can retire, you'll need to do some calculations:

  • Estimate how long you're going to live. According to current life expectancy from the Australian Bureau of Statistics (ABS), if you were to retire now at age 65, you could expect to have 20 years of retirement ahead of you (slightly less for men). As life expectancy is trending upwards, it's likely healthy individuals will need to plan for longer than this and save accordingly.
  • Figure out how much annual income you need. This depends on the lifestyle you want to live. If you enjoy eating out regularly, going on holidays and generally appreciate a few finer things in life, you won't want to sacrifice this when you retire. If you don’t plan on travelling, only eat out occasionally and are relatively careful with your money, then your income needs won't be as high.
  • Work out your expenses. Think about whether you’ll still have mortgage repayments to make and if there are any other unique expenses that might need to be accounted for. You need to consider how much income you will need to support yourself and the lifestyle you want when you retire.

Boost your super for a comfortable retirement

To retire at the age you want and lead the kind of retirement lifestyle you desire, you need to take some steps today to ensure you have enough super in the future. Here are a few key tips:

  • Consolidate your super accounts into a single fund.
  • Make additional contributions from your before or after-tax salary.
  • Find out whether you're eligible for the government co-contribution.
  • Get your spouse to make super contributions on your behalf (or make contributions to your spouse’s account to help them out).
  • Consult a financial planner about the right investment strategy for your super.
  • Work with a financial planner to develop a retirement plan that will identify how much you need to retire based on the type of retirement you want.

 

How soon you can retire is entirely up to you - and your super! To find out more about how to boost your super, make an appointment with an EISS Financial Planner today.

 


1 The preservation age for individuals born before 1 July 1960 is 55. For individuals born between 1 July 1960 and 30 June 1961 it’s 56. For individuals born between 1 July 1961 and 30 June 1962 it’s 57. For individuals born between 1 July 1962 and 30 June 1963 it’s 58. For individuals born between 1 July 1963 and 30 June 1964 it’s 59. For individuals born after 30 June 1964 it’s 60 years.

2 ASFA Retirement Standard, March Quarter 2018.

3 Assumes 7% a year return after fees and taxes reinvested. Money runs out after 25 years. Calculated using ASIC MoneySmart’s ‘retirement planner’ calculator.

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