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Budgeting for retirement: Is $1 million enough?

With the increase to 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 December 2023, it is suggested that a single retiree needs an annual budget of $51,287 (just under $2,000 per fortnight) and a retired couple needs an annual income of just over $72,148 (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.

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 lifestyle in retirement look like? For those who don’t own a house when they enter retirement and want to maintain their standard of living in retirement, 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 living and housing 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 annual 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.

How much super do I need to retire?

For Australians looking to enter comfortable retirement from age 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 the rate of inflation, the rising cost of living expenses, in addition to one-off expenses such as unexpected medical expenses, ongoing health care expenses, increased private health insurance policies 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. You can also check your needs with this retirement calculator. 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 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 super 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. 

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 from 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 standards and personal savings potential while you work towards full-time retirement. Alongside the advice of financial advisors and retirement planners, with a customised budget plan based on your level of current 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 using your personal saving for a comfortable lifestyle in retirement or modest lifestyle, we’ve helped many Australians with their retirement nest egg outcomes. If you’re looking for help to track expenses in retirement, and even creating a breakdown of living and housing expenses against your current income in retirement, call us on 1300 300 922 or enquire online today about planning for your phase of retirement.

What if you don’t have enough in your retirement fund when the time comes?

For those who need it, the age pension provides a means-tested safety net that pays up to $28,514 a year for singles or $42,988 a year for couples. 

Australia reached a milestone in 2019 when more than half of 66-year-olds were totally self-funded in retirement. This means their assets and current income were too high to qualify for the age pension. Only 25 per cent were drawing a full age pension.

If you’re worried about whether you’ll have enough if your retirement fund, you can consider making extra contributions. This is better done sooner rather than later as it certainly makes a significant difference over time, the ability to do this may vary depending on personal situations. Some Australians make extra contributions towards their future superannuation nest eggs.

Do keep in mind when you’re making a plan for retirement that the age pension qualifying age is expected to keep rising in line with longer life expectancies, up to the proposed age of 70 by 2035.

How to retire richer

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 in your future, consider the following for your retirement plan:

  • Consolidating multiple super savings accounts into one to reduce costs
  • Choosing a fund for better investment return and a well balanced investment option
  • Choosing an investment strategy that suits your financial priorities
  • Reducing your costs before retirement so you can put away more for your ideal retirement savings goals
  • Making extra voluntary contributions to your super fund with any additional income.

Speaking of that last point, some workers leverage their current salary to salary sacrifice, allowing them to hit annual contribution limits in order to boost their future annual retirement income. This can transform your modest retirement into your ideal retirement lifestyle expectations. However, the ability to do this can depend on personal situations, so be sure to consider seeking help from a professional retirement advisor.

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 and daily expenses. MyBudget can help you to set up a current budget with your personal objectives and ideal retirement targets. 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.

Will my expenses change when I retire?

You may find that your budget’s monthly and daily expenses could change when you retire. When you become more aware of your various income sources, it can make the process a little more complicated.

Due to potential changes to your health, you may find that you need to alter your private health insurance policy, as well as consider unexpected costs after retirement like medical costs and new medical expenses. 

Your living and housing expenses may also increase over time due to effects of inflation. The inflation rate should always be a consideration when you consider your future expenses and even though government assistance should rise alongside this, that doesn’t mean that cost of living challenges won’t arise from time to time.

How can MyBudget help me prepare for retirement?

MyBudget can help you prepare for retirement by ensuring that all of your bills are paid on time and you’re able to put away any additional income towards saving for retirement. We love helping Australians reach their financial goals, and retirement savings goals are a very common goal to strive towards.

MyBudget have helped over 130,000 Australians live their lives free from money worries. This includes allowing Aussies to improve their financial situation, plan retirement goals and even create the ability to put additional contributions towards their superannuation funds. 

To ensure you have a comfortable retirement, get in contact with MyBudget by giving us a call on 1300 300 922 or enquire online.

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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.