It is one of the biggest questions we hear – how much super is enough to live on after retirement?
Of course, the exact answer is different for everyone as it depends on how long you are in retirement, what financial commitments you have, the lifestyle you want, and what non-super assets you have.
The ASFA Retirement Standard provides an invaluable starting point for looking at your requirements in the future and making plans on that basis now. It provides some insight into the proportions of retirement budgets typically spent in retirement across basic categories such as food, health and transport.
Seriously contemplating how your life might differ to the assumptions behind the annual retirement standard guidelines will help you set savings goals. However, as changes to your requirements (such as a shift from leisure to health expenses) are as unpredictable as the increased expenses, saving as much super as possible before you retire can’t be overlooked as a key to protecting your retirement lifestyle.
The ASFA Retirement Standard
The Association of Superannuation Funds of Australia, ASFA, has devised a retirement standard which benchmarks two levels of annual budget (‘modest’ and ‘comfortable’) Australians need once they stop working.
These standard retirement calculations are based on budgets modelled for a 70 year old living on her own, and for a couple (both aged 70). The budgets include food, health, transportation, communication and energy spending, as well as ordinary expenses such as internet access, health insurance, quality clothing, club membership and owning a car. The full break down of these estimates is available on the ASFA website.
Each quarter, ASFA releases new figures to allow for moving living costs.
If you are in your late 80s or early 90s, you may find the budgets modelled for 90 to 95 year olds (from the ASFA Retirement Standard for Older Retirees) provide a better projection of your expenditures and requirements.
So how much do you need?
If you take the relevant annual figure and multiply it by the number of years* you expect to be in retirement, you will get a rough idea of how much super you need for a modest or comfortable retirement lifestyle (based on ASFA’s definitions as explained above). The ASFA website includes a simple calculator to show how much super may be enough.
Your personal circumstances and goals also need to be considered in deciding how much super you will need in retirement.
What does this mean for you?
It may mean you need more super than you thought – consolidating other accounts into one, making personal contributions and salary sacrificing are ways to increase super. This could be a good reason to contact our Member Advice Consultants for some personal advice, too.
*You can use the Australian Bureau of Statistics life tables for an idea of your life expectancy.