How Much Do I Need In Retirement?

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Recently Steve was interviewed by The Advertiser finance journalist Anthony Keane.  This resulted in an article that was published on news.com.au.  It is extracted here – Steve is quoted at length.  Thanks to Anthony for this great article.

THE numbers are enough to scare many people off saving.

Aussies are often told that they will need at least $1 million to have a comfortable retirement, yet the average superannuation balance for people in their early sixties is about $200,000 for men and $100,000 for woman.

It’s a massive gap for most, but the numbers are not as negative as they first seem. Age pension payments, seniors’ discounts and some pre-retirement strategies can help a majority of Australians enjoy their golden years even if they’re not millionaires.

The first step is working out how much you will spend. A great starting point is the ASFA Retirement Standard, a super industry benchmark that is updated regularly and currently says a couple aged 65 seeking a modest retirement will spend $33,799 a year, while a couple wanting a comfortable retirement will spend $58,444.

It says a “comfortable” retirement gives you good clothes, bottled wine, regular restaurant meals, frequent leisure activities, a reasonable car and annual holidays in Australia.

While the ASFA figures are a broad guide, Wealth On Track principal Steve Greatrex says they are “actually surprisingly accurate”.

Greatrex says most clients simply want to know whether they will have enough money in retirement, and each person’s spending habits are different.

“Some people live frugally and some people live large. People don’t change their habits that much,” he says.

“Frugal is a positive — they’re not tight, they just don’t need a lot to live on, and they live within their means. High-spending people can be tough to help.

“Work out a budget and then add on your planned holidays.”

Some financial planners offer advanced cashflow modelling software. You can also visit the Australian Securities and Investments Commission’s moneysmart.gov.au website, which has a handy retirement planner tool that shows your projected income from super and pension payments.

MoneySmart senior executive leader Miles Larbey says you need to have a sense of the sort of lifestyle you want and how much it will cost, which can change over the course of your retirement.

“The financial aspects are often complex, and getting reliable and trustworthy information is vital,” he says.

Most of today’s retirees receive a combination of age pension and superannuation payments, although tightening pension rules will reduce its use in future years.

The age pension and supplements pay $33,716 a year to a couple and $22,365 to a single. Depending on your desired lifestyle, you may only need to draw down $200 to $400 a week from your own savings.

Larbey says learning about super long before retirement can make a huge difference to your lifestyle in the future. “The longer you have to save, the more chance your savings have to grow,” he says.

Many seniors also get discounts on healthcare, transport and some government charges, which can make a big difference to their weekly expenses.

Greatrex says Australians are living longer and in some cases are retiring too early.

“I often tell clients there is no strategy I can implement that is more powerful than you working one more year. Even part-time, it just makes an enormous difference to the final sums,” he says.

And don’t plan on leaving a pile of cash for the kids. Their super will probably be much bigger than yours ever was, and a handout mentality can often lead to family fights.

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