Most of us daydream about the day we finally finish work and retire. Whether you dream of cruising around the world, travelling around Australia, or just pottering about in the garden and improving your golf skills, the magic question is: how much do you need to make your retirement dreams a reality?
There’s a lot of discussion – and disagreement – about the size of the lump sum you will need at retirement.
According to the Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard, to have a ‘comfortable’ retirement, single people will need $545,000 in retirement savings, and couples will need $640,000. This calculation covers expenses such as private health insurance, home repairs and renovations, food and leisure activities. A ‘modest’ retirement has less luxuries. SOURCE
But there’s a big “but” here. The figures calculated above assume that the retiree owns their own home and have no debt owing. It relates simply to the expenditure by the household, and includes accessing Centrelink Age Pension during retirement.
When thinking about retirement, we don’t tend to think about our super balance. Instead, we think about a lifestyle we want in retirement and translate this into how much cash we will need per week, month or year to live this lifestyle.
How Much Do I Really Need?
The important thing is to start thinking about all of this early on. Don’t wait until you’re 60, or worse still 65 and retiring! You will need to work out how much money you think you’re going to need in retirement.
A good place to start is to think about the amount of money that you typically spend and break this down into essential needs (such as food, clothing, utilities), preferences (such as holidays, travel, eating out frequently) and nice to haves (such as a boat or holiday home).
Whether you are seeking a modest or a comfortable lifestyle in retirement, you will need to figure out how much superannuation is going to be enough to give you the retirement lifestyle you are seeking and a happy retirement. When researching retirement you will hear a lot about comfortable or modest lifestyle.
The question is just how are “comfortable” and “modest” defined?
What Is A Comfortable Lifestyle?
A comfortable lifestyle in retirement is one which enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities. It allows funding for private health insurance, a reasonable car and regular holidays (domestic and occasionally international). It will allow you to make home upgrades such as replace a kitchen and bathroom over a 20 year period.
A comfortable retirement might allow you to eat out more regularly and enjoy more luxuries than would be feasible in a modest retirement.
What Is A Modest Lifestyle?
A modest lifestyle in retirement is better than the Age Pension, but will still only fund fairly basic activities. This lifestyle might involve owning an older, less reliable car. You may only be able to take part in one paid leisure activity infrequently. Travel may involve short trips to places close by.
There will be no budget for home improvements. You will be able to do repairs to your home but not do any major home upgrades.
At the end of the day, the type of lifestyle you enjoy will be dictated in many ways by financial resources you can employ to generate your retirement income.
There are many ways you can start generating wealth for retirement, and everybody will have a different strategy that suits their financial situation. An important step in your retirement plan is to seek advice from a registered financial planner who can develop a strategy to create the retirement lifestyle you are seeking.
About Massey Financial Advice
I am a Brisbane-based Financial Adviser with more than 14 years of experience working with professionals to achieve financial freedom. I have clients across Brisbane, including from Ashgrove, The Gap, Kenmore and Chapel Hill.
Sometimes people don’t really understand their financial situation – whether that be their personal cash flow, wealth creation or retirement plan, and this puts their lifestyle at risk. I partner with professionals so that they feel empowered to make the best financial choices for them, their family and their career.
A great first step to preparing for your retirement is to book a cost and obligation free Financial Gap Strategy Session by clicking the link below. This is a phone call at a time that suits you to discuss what you are working to achieve and find out whether I can help.
If you would care to share your experience with me, please comment below!