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How Much Money Do I Need to Retire?

May 15, 2023

This is a common question I hear when I sit down with people to help them plan for their retirement.

There are many things that I chat about with my clients. One of the misconceptions is that you need $1 million to even consider retiring.

Do you need $1 million to retire?

When I ask clients how they’re progressing towards their retirement, they will often say to me “Well, I think I’m behind, because I don’t have $1 million dollars and I’ve heard I need $1 million dollars to retire”.

Whilst it can be true for some people (that they’ll need a million dollars in retirement savings), the problem with making a blanket statement like this is that it doesn’t take into account anything to do with your personal objectives or the lifestyle you want to have.

Retirement Savings

The statement that you need $1 million dollars to retire comes from Government research that mentions the need for about $60,000 a year to live a comfortable retirement.

The research assumes that you would invest a million dollars and then draw an income from that. With a lump sum of that size, the investment returns should be enough to maintain your lifestyle.

It does not seem to consider the following:

  • Things like the age pension
  • Not everyone wants or needs $60,000 a year to maintain their lifestyle
  • Some may be comfortable with less
  • Some people will need more income and as such more superannuation
  • The type of holidays people want
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Don’t forget about your other assets that could be used to fund your retirement, such as other investments, property or even downsizing your home. Your superannuation isn’t your only option.

You’ll also need to think about the big expenses which still need to be covered. These include mortgage payments, rent, home renovations, debts, travel, medical costs and general living expenses.

Aurora Wealth - Lifestyle Focused Retirement Planning

The key is to sit down and begin to articulate what your financial goals are, and what you would like to do in retirement. Then figure out how much income you need to have fun.

  • What might the costs for your holidays be?
  • Would you like to help out your children?
  • How often do you want to go out for dinner?

This will help you get a better understanding of what you’ll need for retirement and whether you’re on track. Retirement planning can help you to discover exactly how you can achieve your goals.

How much Super do I need?

As we have said before you can begin to answer this question by working out what a ‘comfortable’ retirement looks
like for you. Your personal circumstances will be unique. The problem is, you’ve probably never lived
in retirement, so you don’t really know what to expect.

The Government has put together some information, which you can look at here:

https://moneysmart.gov.au/glossary/asfa-retirement-standard

To plan for your retirement, you’ll need to ask yourself a few questions. Here are my top tips, to help you plan:

How Will I Know How Much Super I Will Need To Retire?

Lifestyle Expectations

Start by considering your normal weekly expenses. These may include fuel, groceries, insurance, and even travel.
Look at your bank and credit card statements to figure this out.

Then think about the lifestyle you’d like to enjoy:

  • What sort of lifestyle do you want?
  • How much money will you need to fund that lifestyle?
  • Will you go out for dinner multiple times a week, or be cooking at home?
  • Will you be taking regular holidays?
  • What’s your holiday style? Do you dream of caravanning around Australia or staying at BnBs? Perhaps you would prefer the world’s grand hotels?
  • Is there a hobby you’d like to start?
  • Would you like to help your children and/or grandchildren financially?
  • What sort of social activities are you planning?

Also, it would be good to think about the practicalities of your financial situation:

  • How will your superannuation funds be invested during retirement?
  • Will you be eligible for a Government Age Pension?
retirement

Personalised Retirement Planning

Depending on your answer to these questions, the amount of superannuation you’ll need could differ quite a lot.

This is why I find it so frustrating when I see statements like “you need $1,000,000 to retire”. Statements like this are general in nature and might not apply to your situation.

General financial advice is all well and good but planning a comfortable retirement lifestyle requires personalised advice.

You may need $1,000,000 if you’re planning to live lavishly in retirement, but, if like me, you want to travel around Australia and play golf, you wouldn’t need much for that.

How Much Does Retirement Cost?

While it can be true that $1 million will be needed for retirement, the problem with giving this ballpark figure is that it doesn’t take into account your personal goals, needs and lifestyle requirements.

ASFA (The Association of Superannuation Funds of Australia) estimates that a modest lifestyle covering the basics will be met by the Age Pension. For a more comfortable lifestyle, ASFA has estimated a requirement of $690 000 per couple or $595 000 per single person in savings. This amount is correct at the time of writing – to check whether this amount is current please check the ASFA website.

Another way to look at it is this; if you own your own home, you’ll need about two-thirds of your pre-retirement income, to maintain your current lifestyle.

So, what are some of the factors that determine how much Superannuation you’ll have?

Again, there are quite a few factors, but here are some of the most important:

  • When do you plan to retire? The more time you have before retirement, the more you can make a difference and grow your superannuation. Get started as soon as you can.
  • How much are you contributing to superannuation? Are you making contributions yourself? Are you relying on employer contributions?
  • How is your superannuation invested? It seems obvious, and it probably is, but the bigger the returns your superannuation makes leading up to retirement the more you’ll have.
  • Fees? Paying additional fees isn’t always wrong, paying additional costs might get you a better outcome overall. Don’t pay extra for the same outcome, however.
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one million to retire

When Should I Start Planning My Retirement?

This one’s an easy one: now! It’s never too soon to start planning for your retirement. You’re probably aware of how much Super you currently have, but how much will that be when you retire? And will it be enough?

Once you’ve estimated your required retirement income, you can create a plan and work toward your goal.

Remember, retirement can last a long time, so take this into account. Most people have a life expectancy of well into their 80s, so you’ll need enough income to live comfortably for at least 20 years after retirement.

Where to start?

To get started, there are some tools like the one on the Moneysmart website that can give you a guide to how much you’ll need.

Ultimately though, it’s probably worth having a chat with someone and getting some personalised advice based on your specific needs and objectives. I can help you with that.

Top Tips for Growing Your Superannuation Funds

If you’ve done your homework and considered all of your income and realised that your Super might fall short of your needs, don’t be discouraged, there are things you can do to grow your Superannuation.

Consider consolidating your Super into one account. This will cut out extra account fees and enable you to have a better idea of what’s happening with your Super.

Search for lost Super every few years. Money which is rightfully yours may be sitting in a forgotten account.

By making extra contributions to your Super, you’ll see big changes in the long run. This can be done in multiple ways:

  • Salary Sacrifice: contributing extra money to your Super fund from your before-tax salary can make a huge difference. Your contributions may be taxed as low as 15%, rather than your marginal tax rate. Depending on your circumstances, this could be a significant saving.
  • After-Tax Contributions: You could consider contributing to super using after tax money or savings.
  • Co-Contribution: the Government offers co-contribution for those in the low to middle-income earner bracket.
  • Mortgage/Debt Paid Off? Consider making partial payments to your Super account instead.

Make sure you research or get advice first. There are limits on how much you can contribute to superannuation, and you need to consider your personal tax situation too.

Check your Super balance annually and review your employer’s contribution, investment options, account fees and insurance. Make sure your fund has the correct personal details and tax file number. Is your Super being invested in the best way possible? Call your Superannuation company to ask any questions you may have.

There are a lot of things you can do to make sure you’re set up for a successful retirement. There are also some good tools out there
that will give you a guide on how much superannuation you may have at retirement and the lifestyle you may be able to live.

If you’re unsure or have any questions, I’d love to have a chat with you.

Feel free to call me on 03 7065 1684 or book a chat today!

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Micheal is a financial expert with over a decade of experience in the field. Growing up in countryside Victoria, and later moving to Melbourne to pursue higher education, Micheal has since then been working in the financial industry for over 13 years with much of his career spent as a financial advisor. He holds the prestigious Certified Financial Planner designation and is a registered member of the Financial Planning Association of Australia. Micheal is also a dedicated family man and proud father of 3 amazing children. When he isn’t working or spending time with his family, he enjoys outdoor activities such as hiking and camping.

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