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How much money do I need to retire?

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The Association of Superannuation Funds of Australia (ASFA) Retirement Standard benchmarks the annual budget needed by Australians to fund either a 'comfortable' or 'modest' standard of living in the post-work years. It is updated quarterly to reflect inflation and provides detailed budgets of what singles and couples would need to spend to support their chosen lifestyle.

 

What does modest and comfortable mean?

A modest retirement lifestyle is considered better than the age pension but still only able to afford fairly basic activities.

A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as:

  • household goods
  • private health insurance
  • a reasonable car
  • good clothes
  • a range of electronic equipment
  • domestic and occasionally international holiday travel.

The June quarter 2019 figures indicate that couples aged around 65 living a comfortable retirement need to spend $61,522 per year and singles $43,601, up 0.8% for each on the previous quarter. At the modest level there was an 0.6% increase for singles and a 0.5% increase for couples.

These various changes are more or less in line with the All Groups CPI 0.6% increase between the March and June quarters.

Over the year to the June 2019 quarter, costs were up around 1.5% for couples at both the comfortable and modest levels, compared to the 1.6% increase in the All Groups CPI. This equates to couples needing to spend $918 more a year, and for singles the amount is $648.

Budgets for older retirees rose from the previous quarter by around 0.7% at the comfortable level and by 0.5% at the modest level.

Many retirees would have welcomed the recent decision to decrease the deeming rate in the asset test for the age pension but at the same time they have been facing increased costs of living and lower returns from investments, such as term deposits. Having sufficient savings in superannuation to support the lifestyle Australians want and deserve in retirement is an imperative.

 

Prices that have risen substantially

However, while the increase in the headline rate of the CPI might not look large, retirees have been facing significant increases in the price of many necessities of life. The drought has impacted the prices of a range of foods, the cost of private health insurance continues to grow at around twice the general rate of inflation, and petrol prices are up.

The costs for retirees that increased substantially over the last 12 months are:

  • Price of bread up by 4.8%
  • Price of beef up by 6.0% and lamb up by 13.5%
  • Price of milk up by 2.9%
  • Price of fruit up by 4.9%
  • Price of vegetables up by 6.2%
  • Price of beer up by 2.5%
  • Property rates up by 2.3%
  • Price of hairdressing up by 2.9%
  • Price of private health insurance up by 3.25% on average
  • Price of dental services up by 2.3%
  • Price of domestic travel up by 3.5% and price of international travel by 4.1%

The most significant price increases in the June quarter were automotive fuel (10.2%), medical and hospital service (2.6%) and international holiday, travel and accommodation (2.7%).

Table 1: Budgets for various households and living standards for those aged around 65 (June quarter 2019, national)

Household type
Single Modest Couple Modest Single Comfortable Couple Comfortable
Housing – ongoing only $99.58 $111.92 $116.66 $121.94
Energy $36.95 $49.62 $46.81 $58.05
Food $90.75 $168.25 $117.34 $203.94
Clothing $20.40 $38.78 $27.25 $50.75
Household goods and services $33.31 $39.15 $73.23 $90.20
Health $49.71 $95.91 $102.00 $190.94
Transport $90.01 $96.12 $146.92 $159.36
Leisure $93.48 $146.57 $181.75 $273.06
Communications $18.64 $21.00 $23.31 $30.34
Total per week $532.84 $767.32 $835.26 $1,178.59
Total per year $27,814 $40,054 $43,601 $61,522

 

Table 2: Budgets for various households and living standards for those aged around 85 (June quarter 2019, national)

Household type
Single Modest Couple Modest Single Comfortable Couple Comfortable
Housing – ongoing only $99.58 $111.92 $116.66 $121.94
Energy $36.95 $49.62 $46.81 $58.05
Food $90.75 $168.25 $117.34 $203.94
Clothing $20.40 $38.78 $27.25 $50.75
Household goods and services $51.13 $73.28 $149.73 $179.41
Health $85.63 $120.00 $142.31 $224.99
Transport $40.10 $50.12 $45.11 $55.13
Leisure $61.00 $87.25 $125.37 $176.54
Communications $18.64 $21.00 $23.31 $30.34
Total per week $504.17 $720.22 $793.88 $1,101.09
Total per year $26,318 $37,595 $41,441 $57,477

The figures in each case assume that the retiree/s own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. All calculations are weekly, unless otherwise stated. Annual figure is 52.2 times the weekly figure.

 

More information

Costs and summary figures can be accessed via the ASFA website. ASFA provides individual calculators to help Australians plan for retirement. Australians can find out more about superannuation on the independent Super Guru website.

Martin Fahy is Chief Executive Officer of The Association of Superannuation Funds of Australia (ASFA), the peak policy, research and advocacy body for Australia’s superannuation industry. This information has been provided by Cuffelinks Pty Ltd (ACN 161 167 451) for WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities, we), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. First published on 13 August 2019. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. Any advice and information in this publication is of a general nature only. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of an individual’s liabilities, obligations or claim entitlements that arises, or could arise, under taxation law, and we recommend that you consult a registered tax agent. WealthHub Securities Ltd. is not a registered tax agent.