How much money you need in your retirement to retire at age 65 depends largely on what type of retirement lifestyle you want to live, how long you expect to live after retirement, and whether or not you own your home.
The ultimate goal of any soon-to-be retiree is to have a comfortable lifestyle after they stop working.
This is where you can maintain a good standard of living, including high-quality private health insurance and regular recreational activities. It will also allow you to have a decent car, set aside money for home repairs and eat out occasionally. An annual domestic trip may also be on the cards.
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How much is a comfortable retirement worth?
Thanks to rising inflation and the cost of living, the Association of Superannuation Funds of Australia (ASFA) raised the standards for modest and comfortable retirement earlier this year.
This rise serves as a stark reminder of the long-term returns from such markets S&P/ASX 200 Index (ASX: XJO) plays an important role in building retirement savings.
To live a comfortable retirement lifestyle at age 65, individuals can expect to spend about $54,840 a year, and couples can expect about $77,375 a year.
How much do I need in my retirement to fund this retirement lifestyle?
To fund the level of expenses needed to live comfortably, you’ll need a retirement balance of about $630,000 for an individual, or $730,000 for a couple.
But these figures assume you’ll retire at age 67 and need about 11.5 years of retirement for an individual or 9.5 years for a couple.
They also assume you own your home, that Australians will withdraw all their capital at retirement, and that they will receive a share of the age pension.
The problem is that this is not a reliable figure for Australians who want to retire two years earlier (at age 65) or who are not eligible for the Age Pension.
What if I want to retire at 65 instead of 67?
If you want to retire two years earlier, you’ll need to fund an additional two years (or more) of retirement.
Using the above figures, this means that an individual would need a balance of nearby retreats. $740,340, And will need a couple around $890,000.
And also remove the payment of old age pension. Then what do I need?
ASFA calculations assume that retirees will receive a fractional age pension. It’s quite difficult to calculate what will happen here because it varies a lot depending on your income and the value of your assets.
So let’s calculate this using the maximum basic rate for age pension as an example.
As of 20 March this year, the maximum basic rate of age pension is $1,100.30 per fortnight for singles and $1,658.80 for couples.
That’s $28,607.80 for singles and $43,128.80 for couples over the course of a year.
Assuming you need to fund for 11.5 years and 9.5 years of retirement respectively, this gives a total of $328,989 For singles and just shy $410,000 Over and above the figures for couples we calculated above.
So the answer is…
To retire without the Age Pension you would actually need a superannuation balance at age 65 of around $1.07 million for singles and $1.3 million for couples.
