How Much Do I Need To Retire?
by Chris Tetzner, Para-Planner
Retirement will start to play on most peoples’ minds once they hit the age of 50; it’s also the time when they start to seriously think about how much retirement savings they will need to fund that retirement. There are a number of factors that will determine how much each individual or couple will require, variables of which include:
• Your expected date of retirement
• Desired income in retirement
• The rate of inflation
• The investment returns your retirement savings achieve both now and in retirement
• Other sources of income (e.g. government funded pensions)
• Life expectancy
Depending on these factors and others, everyone will have a different idea on the amount they require to adequately fund their retirement income needs.
So where do you start?
Westpac Bank, along with the Association of Superannuation Funds of Australia (ASFA), has begun to publish a budget on what is required for both a modest and a comfortable lifestyle in retirement.
It’s hard to believe the majority of people could comfortably live off the estimates in Westpac’s table below, which is why it’s so important to have your long term investments working for you to enable a more comfortable lifestyle into retirement.
Westpac / ASFA retirement standards. Budgets for various households and living standards (December Quarter 2009)¹
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This expenditure can be greater than household income, after income tax, where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.
However, the trap people can fall into is that one person’s idea of a comfortable retirement is different to the next. To illustrate this, consider the following:
Some scenarios
Gary and Anne want to enjoy a quiet retirement in the suburbs, go to the movies once a fortnight and eat out at their local RSL club once a week. For holidays, they will make the annual trek up to the caravan park on the beach with the caravan and camp for 3 weeks in the same spot that they have for the past 25 years. Gary will enjoy a spot of fishing and Anne will lie on the beach. They both enjoy an evening walk along the beach and then a couple of drinks around the campfire each night.
Rodney and Alicia, have a different outlook. They enjoy city living so have an apartment near the CBD. They enjoy going to the opera and the theatre and like to dine out most nights of the week at relatively expensive restaurants. Rodney enjoys playing golf once a week and is a member of an exclusive Sandbelt club. Alicia is a member of her local tennis club. For holidays, they will spend at least 4 weeks a year in the apartment they own on the Gold Coast and every second year they will also go on an overseas trip. Their next intended destination is Europe.
As you can see, Rodney & Alicia’s lifestyle requirements will require substantially more retirement income funding than what Gary & Anne’s will!!
When you consider the maximum government funded Centrelink pension is $16,750 per annum for a single and $25,250 for a couple, there is a significant funding gap required if you would like to live a comfortable retirement, even to the standards set by Westpac / ASFA. This is why it's important for you to take these minimum levels into consideration when doing your Financial Strategy, so you can work towards aquiring long term investments that will financially assist your retirement.
For Part 2 of this article, next week we will look at solutions for achieving this funding gap and the lump sum amount’s required for several different scenarios. In the meantime, I encourage you to speak with your John Hopkins Financial Adviser who can look at tailored solutions to ensure you enjoy a financially secure and happy retirement.
¹http://www.superannuation.asn.au/
For more information, or to arrange an appointment with a John Hopkins Financial Adviser, please contact our Client Liaison Officer on 1300 726 082 or click here.