Retirement in Australia - How Much Do I Need?

Insight | by Ranald Hall
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Australia is known for having one of the best retirement systems in the world. Since 1992, employers have been required to contribute to their employee’s retirement savings. The Super Guarantee now sits at a generous 10.5% and changes to legislation have made it possible for people of all ages to make tax efficient contributions to Super. For those who are eligible, the Age Pension offers a valuable safety net in retirement. Some retirees may also benefit from a range of generous tax offsets.

Despite this, a recent survey by found that 60 per cent of Aussies felt they wouldn’t have enough savings and assets for retirement.

This is the first in a mini-series exploring retirement in Australia. We will examine a number of topics including the cost of retirement, the best and most tax efficient ways to save and the UK State and Australian Age Pensions.

How much do I need?

The cost of living in Australia is the 5th highest in the developed world and is around 14% higher than the UK. Research from the ASFA estimates that a couple would need a Superannuation balance of around $640,000 by age 67 in order to achieve a comfortable retirement. By their calculations, this would provide $68,000 of income each year until their 92nd birthday, when funds would likely run out. For a single person these figures would be closer to $545,000 and $48,000 respectively. In both cases they assume some entitlement to age pension, those who are unlikely to be eligible would need to save more. You can find a breakdown of their example budget in the ASFA’s Retirement Standard Report, this is updated quarterly to reflect changes in the cost of living.

While this can be a helpful yardstick, everyone’s idea of a comfortable retirement will be different and you may need more or less depending on where you live, whether you expect other income in retirement, the age you plan to retire and the kind of lifestyle you hope to enjoy. Life expectancy is another major factor as the longer you live, the more savings you’ll need to support you through a longer retirement. Today an Australian male aged 50 years can expect to live another 33.2 years, and a female another 36.6 years.

The graphic below shows the ASFA definition of a comfortable lifestyle, how does it compare to your expectations? Do you see yourself spending more or less? As an expat, you may plan to travel back to the UK on a regular basis to see family, how much more could that cost in retirement?

How do your savings compare?

It can often be hard to tell whether you’re on track for a comfortable retirement. Everyone’s needs and circumstances are different so it’s not always possible to apply a rule of thumb. You might already have retirement savings in Australia or overseas, you might be entitled to UK or foreign State Pension or Australian Age Pension, you could be planning to downsize, expecting a windfall or inheritance or have regular income from a rental property. It can be hard to understand how these different parts might fit together and whether they will be enough to meet your individual needs.

What happens if you aren’t on track for your Retirement goals?

The answer depends on how close you are to retirement and your ability to save. The further you are from retirement, the better the opportunity you have to get your plans back on track. If you are closer to retirement and aren’t able to top up your savings in time, you may be forced to make some difficult decisions. Either you work longer than originally planned or if that’s not an option, accept that you’ll have less to spend on the nicer things in retirement. I’m sure neither of these options sounds appealing. Our aim is to help you avoid either scenario and give you the best chance at your dream retirement.

How we can help

We offer a Retirement Strategy service to new and existing clients. By taking the time to understand what retirement means to you, we can build you a personalised plan. We will take your specific retirement aims and individual circumstances into account and can help you to understand whether you’re on track to meet your goals. If not, we can provide clear steps on how you can achieve them while getting your existing savings working harder in the process.

Depending on your plans, your income needs in retirement might differ from the examples provided by the ASFA. Some retirees spend more on travel and leisure in the first 10 years of retirement and reduce their outgoings as they get older. Others use their savings to help children onto the property ladder or towards their grandchildren’s education. Using cashflow modelling tools, we can help you to visualise how your retirement might look based on your specific plans and circumstances. We can show you how long your savings might last if you spend more or less in retirement, retire early or decide to work longer. We can also demonstrate the positive effect lump sum or regular savings can have on your retirement goals.

Most importantly, if your retirement savings are spread out across several pots in Australia or overseas, we can help to simplify them by bringing them together under one roof. We will manage them professionally at a level of risk you are comfortable with, giving you peace of mind, they are working as hard as they can ahead of retirement. We will check in with your progress towards your goals each year, updating your plan as your aims and circumstances change. Once retired, we will help you to build a strategy to ensure your savings last the whole of retirement.

Good financial advice can help you to realise the retirement you’re hoping for. We’ve been helping our clients to achieve their long term aims for over 18 years. If you’d like to discuss your retirement plans in more detail with one of our UK and Australian qualified advisers, contact us today

Please note that this information is general advice and does not take account of investors’ objectives, financial situation or needs. Before acting on this general advice, investors should therefore consider the appropriateness of the advice having regard to their objectives, financial situation or needs.

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