You’re thinking about your retirement and worried about whether you’ll have enough money to live the life you want, or perhaps you’re more worried about not having enough money to even live the life you don’t want!
Uncertainty can create a lot of stress, and doing some research (see article Retirement planning in six steps) can often allay many of your fears even if your financial situation is not as strong as you hoped.
I received an email from a reader researching his retirement options. He referred me to an article from the Melbourne Age What price comfort? The reader asked me the following:
The Age article suggests only $500,000 (supplemented by Age Pension) is required by a couple for a comfortable retirement. Your numbers suggest a lot more. Who’s right?
The reader asks a very good question because you can have many answers to the ‘how much is enough?’ question.
For the benefit of other readers, I’ll first give the background to the question. The numbers he is referring to are those that appear in my article A comfortable retirement: How much super is enough?
Coincidentally, I updated this article in November with new figures based on revised income figures from the Westpac-ASFA retirement standard, but the reader’s question remains relevant.
A comfortable retirement for a couple is considered to be living on roughly $51,000 a year after tax.
I did read the Age article, and the article is based on $50,000 a year rather than $51,000 but it’s still worthwhile working through the reasons why you hear different lump sum figures for the same annual retirement income. The Age article does suggest you may need $500,000 (supplemented by the Age Pension) for $50,000 a year, but the article also quotes $700,000 as a lump sum at retirement, which doesn’t include any Age Pension. Most of the discussion in the article centres on an adviser’s estimate of $550,000, although this same adviser believes individuals should save more than this to minimise the chances of suffering if the Age Pension rules change, or if $50,000 a year in retirement doesn’t meet a couple’s lifestyle needs.
Now, your question: Who is right? Annoyingly, I think every answer may be right, although my original lower amount of $720,000 (including part Age Pension) is a cushioned amount. If you’re eligible for a part Age Pension you need less money upon retirement for a certain lifestyle because the Age Pension is supplementing your income. I have modified the range of my target lump sum for couples (based on ASIC/FIDO calculators) to accommodate those who are not concerned about including a buffer in the target. If you’re not eligible for the Age Pension, then $780,000 can deliver you an income of $51,000 a year assuming it is in the super environment, and subject to specific assumptions. If you’re eligible for a part-Age Pension then, potentially, you may only need $500,000 or so but more likely more.
When it comes to retirement planning and working out lifestyle figures for the future, I like to suggest conservative (that is, larger lump sums) because any lump sum suggested by a commentator, expert or online calculator can change depending on how you plan to invest your savings, whether the income is indexed for inflation and what level of indexation. The proportion of Age Pension is also relevant, if applicable, and even what calculator that you use.
The assumptions I include when using ASIC’s retirement planner calculator and ASIC’s account-based pension planner are not the default assumptions of the calculator. I use an investment return of 7% after costs, and 3% indexation, and assume retirement at 65.
Note: The earlier you retire, the more money that you need.
What if I run out of money?
Since the GFC, the risk of running out of money is becoming a big concern for retirees and prospective retirees. Over the next few months, SuperGuide will include resources on the website to help you work out your options if protecting your retirement income is one of your planning objectives.
A case study: I’m 53. Is it too late to save for my retirement?
Setting a retirement target: Living on more than $55,000 a year
A comfortable retirement: How much super is enough?
Turn $4,500 into $300,000 without even trying
Age Pension income test: Does my superannuation lump sum count?
Hi - I'm Trish Power, author of 
