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Budgeting for retirement: Is $1 million enough?

With the Australian Government recently increasing the pension retirement age from 65 to 67, planning for your retirement in Australia is now more relevant than ever.

When you ask yourself ‘how much do I need to retire’, what number do you come up with? It turns out there are a lot of variables, especially if your strategy aims for a comfortable lifestyle over a modest retirement.

Can you rely to live comfortably on the age pension alone? Do you currently budget for retirement? Keep reading to find out if you are on track to having a comfortable retirement.

How much annual income do you need in retirement?

According to ASFA as of June 2023, it is suggested that a single retiree needs an annual budget of $50,207.02 (just under $2,000 per fortnight) and a retired couple needs an annual income of just over $70,806.43 (around $2,800 per fortnight) for a comfortable retirement. This will mean that their retirement budget includes household bills and discretionary spending such as entertainment, leisure activities, good clothes, a reasonable car, private health insurance and occasional overseas travel holidays. We all want to keep up the standard of living we’ve grown accustomed to and be able to cover any additional expenses during retirement . Keep in mind that ASFA terms and calculations are for modern retirees aged 65-84 and do not include the cost of housing, it assumes retirees own their house with no mortgage debt, and are relatively healthy.

Annual income suggested for comfortable and modest retirement for both singles and couples.
Annual income suggested for comfortable and modest retirement.

How much is the age pension in Australia?

According to the Services Australia Government website (last updated 20 March 2023), the maximum amount (based on additional supplements and other factors) a single person on the age pension can receive is $1,064 per fortnight. However if they’re part of a retired couple, the maximum rate is $1,604 per fortnight.

How much do I need to retire in Australia?

Based on the numbers above, we can see that the Federal Government’s age pension only covers just over half of what is required for a comfortable retirement. It’s worth asking yourself, what does your ideal retirement lifestyle look like? For those who don’t own a house when they enter retirement and want to maintain their standard of living, the average annual costs for rent based on median state rental prices as of April 2023 is nearly $24,000 per annum. This is yet another large essential expenses in retirement to factor into the already tight retirement budget, plus any other extra costs.

The age pension continues to be the primary source of retirement income for Australian retirees. According to 2018-19 Australian Bureau of Statistics data, around 30% of retired men rely mainly on super and just 17% of women. Eligible retirees with no personal income whatsoever remain at approximately 30% for women and 7% for men. All this points to around 2 million retired Australians who currently rely heavily on the government age pension as their steady income. 

For Australians looking to retire comfortably at the age of 67, ASFA recommends a single person to have a current super balance of $595,000 and a retired couple $690,000.

Image showing how much singles and couples should have in superannuation at the age of 67 for a comfortable retirement lifestyle.
Suggested superannuation balances for singles and couples for comfortable and modest retirements.

However it’s worth asking yourself, what does your ideal retirement lifestyle look like? Especially when we factor in inflation, the rising cost of living expenses, in addition to one-off expenses such as unexpected medical expenses, ongoing health care expenses and of course, discretionary expenses, then this amount is likely to rise for younger generations. Perhaps $1 million is not a crazy number after all.

If you want to see how you are tracking to achieve the type of retirement to suit your needs, according to Canstar, 30-year-old Australians would need to have a super account of approximately $59,000 for a comfortable lifestyle. Most alarmingly, the biggest super gap is women in their 60s, with over 50% super gap from the desired amount. As women have a longer average life expectancy than men, they need a larger retirement savings nest egg to handle bills. Plus, women are generally disadvantaged by lower lifetime earnings than men.

The table below offers estimated superannuation figures for different age groups to refer to as a rule of thumb. How are you tracking? 

Women aged between 60-64 retired with a median balance of roughly $122,800, compared to $154,500 for men. Both men and women retiring in 2019 fell well short of $545,000 ASFA recommends for a comfortable lifestyle in retirement.

The Australian population current state around superannuation savings is quite bleak. Australian pre – retirees of all ages and income levels are sitting well below the required superannuation balance to achieve a comfortable retirement. 

For additional retirement income, some Australians may have to fall back on a part-time job, while others may need to curb their spending habits or even seek a financial professional to make their new household income and housing costs work for them. And while a late retirement might be less than ideal to some, other Australian retirees may actively look for a part-time job for a period of time to continue being active, and having extra sources of income and extra dollars to keep up with their current lifestyle or to keep the online bank statements looking healthy.

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What can you do to improve your super?

It all comes down to your personal goals and whether you plan to continue ticking things off your bucket list and build an emergency fund as you get older. However, to get the most out of your super fund, put yourself in the best position possible and make a difference to your future, consider the below for your retirement plan:

  • Consolidating multiple super accounts into one to reduce costs
  • Choosing a fund with good long-term performance and low fees
  • Choosing an investment strategy that suits your financial priorities
  • Topping up your super fund to grow the balance faster.

In addition to these tips, owning your own home and paying it off before you retire will remove mortgage payments or rent from your future monthly budget’s list of monthly expenses. MyBudget can help you to set up a current budget with your personal objectives and money goals. Additionally, our dedicated loans team can look into getting you into your own home. We also suggest avoiding carrying credit card and any other debt into retirement.

What is the retirement age in Australia?

The retirement age in Australia is 67 if you were born on or after 1 January 1957. However, if if you were born between 1 July 1952 and 31 December 1953, then you can entire retirement at age 65 years and 6 months; if you were born between 1 January 1954 and 30 June 1955, then it’s 66 years; and if you were born between 1 July 1955 and 31 December 1956, then it’s 66 years and 6 months.

Why delay your retirement planning? While it may be prudent to seek financial advice and assistance from a financial planner or retirement planner for any specific advice around your ideal retirement, MyBudget can provide visibility of your current living expenses and savings potential while you work towards full-time retirement. With a customised budget plan based on your level of income that will set you on the right path to achieve your money goals, no matter how big or small.

MyBudget has helped over 130,000 live their lives free from money worries, whether it’s saving for a comfortable lifestyle or modest lifestyle, we’ve helped many Australians with their retirement outcomes. If you’re looking for help to track expenses in retirement, and even create a breakdown of expenses against your income in retirement, call us on 1300 300 922 or enquire online today about planning for your phase of retirement.

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This content has been updated from the original post published in May, 2015.

This article has been prepared for information purposes only, and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this article you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.