“How much is enough for retirement?” The answer, while it is not one-size-fits-all, can be navigated through thoughtful planning and understanding key financial metrics.

Planning for retirement is a complex but essential task. By understanding the numbers and considering your personal circumstances, you can set realistic goals and make informed decisions. Remember, it’s never too early or too late to start planning. Take control of your financial future today to enjoy a comfortable and fulfilling retirement.

So, let’s delve into some crucial aspects and statistics that can help guide your retirement planning:


Australia’s Retirement Reality

According to the Australian Bureau of Statistics, the average life expectancy in Australia is about 84.6 years for women and 80.5 years for men. This means that if you retire at 65, you need to plan for at least 20 years of living expenses, if not more. But how much will you need to retire in Australia?


Understanding the Numbers

1. Income Replacement Ratio: One common rule of thumb is the income replacement ratio, which suggests that you will need approximately 70-80% of your pre-retirement income to maintain your standard of living. This percentage considers that certain expenses, like commuting or work-related costs, will decrease. However, healthcare and leisure expenses may increase.

2. ASFA Retirement Standard: The Association of Superannuation Funds of Australia (ASFA) provides a helpful benchmark. As of 2023, ASFA estimates that a comfortable retirement for a single person requires about $46,494 per year and, for a couple, it’s about $65,445 per year. For a modest retirement, the numbers drop to $30,582 for singles and $44,034 for couples annually.

3. Superannuation Balance: To achieve these annual amounts, the ASFA recommends having a superannuation balance of $545,000 for singles and $640,000 for couples entering retirement. However, many Australians fall short of this target. According to the Australian Prudential Regulation Authority (APRA), the average superannuation balance at retirement in 2021 was $292,500 for men and $138,150 for women, highlighting a significant gap.


Key Considerations

1. Healthcare Costs: Healthcare is a major expense in retirement. The Australian Institute of Health and Welfare reported that Australians aged 65 and over spend an average of $5,187 per year on health-related costs. It’s crucial to factor this into your retirement planning.

2. Housing: Whether you own your home outright or are still paying a mortgage can drastically affect your retirement needs. Renters, on average, need a higher income to cover their living expenses. The average rent for a one-bedroom unit in Sydney, for instance, is approximately $520 per week, or $27,040 per year.

3. Lifestyle Choices: Your desired lifestyle will heavily influence your retirement savings goal. Travel, hobbies, and leisure activities all come with costs. For example, a retiree who enjoys international travel may need significantly more than someone who prefers local leisure activities.


Bridging the Gap

If your current savings fall short of these benchmarks, don’t despair. There are several strategies to bridge the gap:

1. Boost Your Super: Take advantage of superannuation contribution options, such as salary sacrificing and government co-contributions. Even small, regular contributions can significantly impact your final balance.

2. Invest Wisely: Diversify your investments to include a mix of assets like shares, bonds, and property. This can help grow your savings and provide a buffer against inflation.

3. Delay Retirement: Working a few extra years can have a substantial effect on your retirement savings, allowing more time to contribute to your super and reducing the number of years you’ll need to rely on those savings.

Retirement planning doesn’t have to be a daunting task. Here’s 5 Fun Things to Do with Your Partner to Plan for Retirement. Do you have a legally sound will in place? Read up on these 5 Key Things to Remember When Drafting Your Will.

Feature image: Photographed by sweettoiletpaper. Image via Shutterstock.
This article was first written by Vanessa Stoykov and supplied to Hunter and Bligh.