Retirement Planning: How Much Do I Need?

Retirement planning would be simple if everyone needed to save the same amount. But we’re all unique in our financial situations, lifestyle expectations, responsibilities, and health. That’s why it’s so important to figure out how much you need to save for your individual situation. Once you know how much to save, it’s much easier to make a retirement savings plan that will help you to achieve your goals. 

Since your retirement savings target will probably be different from your neighbour’s, you’ll have to calculate the amount that’s right for you. Here are some things to consider:

 

Age Pension

Australians who meet the eligibility requirements for the Age Pension can receive this taxpayer-funded retirement income for life. You must have attained the age requirement (currently set at 65 years and 6 months), and you must meet requirements regarding income, assets, and residency. Although the Age Pension figures are adjusted several times a year, the current amount is equal to just 27.7 per cent of an average Australian’s annual income. Most people agree that trying to live on this amount is very difficult. If you want to live comfortably, you’ll need to save more. How much more you save depends on the kind of lifestyle you’d like to live.

 

Look at Your Retirement Lifestyle

Lifestyle is extremely personal: what’s comfortable to one person might be nearly intolerable to another. You need to honestly assess what kind of lifestyle you’d like to live during retirement in order to save accurately.

The Australian Securities and Investments Commission (ASIC) regularly calculates how much Australians need to have saved in order to live three general lifestyles:

 

Basic Lifestyle

Without bringing any of your own savings to retirement, you’ll find yourself living a basic lifestyle. The Age Pension currently provides $22,721 a year for a single person and $34,252 for couples. Although you’ll receive discounts on healthcare and energy costs, you will have to live on a tight budget. Assuming you own your home free and clear of a mortgage, you’ll still have to be careful about how much you spend on food, transportation, telecommunications, and health.

 

Comfortable Lifestyle

The ASFA Retirement Standard has calculated how much an average person or couple can expect to spend each year in retirement if they’re living a comfortable lifestyle. They’ve defined a comfortable lifestyle as having a good standard of living in the following ways: a reasonable car, private health insurance, holidays, good clothes, and a range of electronic equipment. 

In order to achieve this standard of living, AFSA says you’ll need to have just over $59,000 a year for couples and $43,000 for a single person. Of course, you can see that there’s quite a gap between the Age Pension amount and the Comfortable Lifestyle amount. And that’s without taking customisation into account.

 

Customise Your Retirement Plan to Suit You

The figures we’ve just talked about are averages and estimates. Therefore, it’s important for you to customise your retirement planning goal for your own situation. For example, if you have an adult disabled child to care for, you’ll need to save more. If you retire without your mortgage paid off, you’ll need to include enough money in your savings to handle your mortgage payments. If you plan on travelling overseas extensively, you’ll need to calculate the costs of your travel.

Once you’ve arrived at a target amount for your annual living expenses in retirement, you can multiply that amount by the number of years you expect to live in retirement, and that will be your targeted savings goal. Arriving at that savings goal is integral to your retirement savings plan. It will help you to know how much you need to salary sacrifice in order to save enough for retirement. 

Feel free to call us at Altus Financial for help with these calculations or to talk about any other retirement planning question. We’re here to help. 

For more detailed information on retirement planning, download our Complete Guide below: