Are you looking to retire and you’re wondering how much you’ll need to survive?
Unfortunately, there is no definite answer to the question, ‘how much do I need to save for my retirement?’
The best way to understand how much you need to be saving for your golden years is to try and complete the superannuation puzzle.
To answer this puzzle, you need to ask yourself the following questions.
#1 – What is the requested savings level for Australians?
#2 – How much money will you have to fork out to acquire or rent a house?
#3 – How much money will you spend on medical expenses, travel and food?
While figuring out your retirement needs can be a challenge, here’s a few simple tricks for you to plan your future.
Utilise The Government Pension Plan
In addition to the savings that you have when retiring, your total retirement funds can also receive a boost from the government.
In Australia, pensions usually kick in for people aged above 65 years who meet the requirements for an asset and income test. Depending on your position when you hit this age, you may be a prime candidate for receiving government pension funds at the end of each fortnight.
- A single person or a couple who are separated due to health can receive a maximum of $926.20 after each fortnight with the amount declining based on the results of the asset and income test.
- A couple can receive a maximum of $698.10 after every fortnight with the amount declining based on the results after an income and asset test.
To understand how the income and assets tests are carried out, you can visit Human Services.
It is important to remember that if you have plans to retire early, you cannot access government pension until you have reached the pensionable age.
It is also crucial to note that in the coming years, the retirement age in Australia is set to be raised to 70 years for those who were born after 1965. This essentially means that unlike your parents, you will have to wait longer before receiving government pension.
Decide On Passive Retirement or Active Retirement
Hopefully, by the time you are hitting the retirement age, you will still have the capability to move around without assistance.
If this is the case, you may want to venture out, perhaps by enjoying time with friends, visiting your grandchildren or by going out to the beach. Regardless of the type of activity that you choose to partake, you can expect that you will be spending money. It is important to note that if you plan on living an active retirement life, then you will need to save more so as to support your lifestyle.
Alternatively, you can choose to live a passive lifestyle in your retirement. Some people reach the pensionable age set by the government and they are comfortable spending their days with their loved ones and enjoying retirement.
The acupuncturists at Austin Therapies note that “it is also important to consider that retirees who live an active life may at some point be medically restricted and asked to lead a more passive lifestyle. The point is that when you live a passive lifestyle, you will spend less and you will thus need to save less for your retirement.”
However, if you plan to lead a passive life, ensure that you have enough money to fund your passion projects and social needs projects.
Take Into Account Housing Expenses
By the time you are going into retirement, you should already have completed paying off your mortgage. If not, you will have to factor in your mortgage payments into your savings calculations.
If you do not own a house and will be residing in a rental, this will also impact your projected savings. According to recent data, the current average weekly rental rates for houses in capital cities range at around $672.
While weekly rental rates for houses nationally range at around $415. On the other hand, units in capital cities range at around $544 and $440 nationally.
This essentially means that your desired retirement residence will also dictate how much you need to have in your savings. The home and roof renovation team from Mr Highlights Roofing add that “paying off your mortgage will help with your retirement planning. But many retirees fail to take into account future expenditures like repairs due to natural wear and tear. Your housing expenses should also include projected spending as well as current.”
Looking for more ways to stretch the household budget? Find out how with these 10 simple steps.
Consider The Cost of Food
According to MoneySmart figures, having expensive tastes could leave you with a bitter taste in the long run.
This is because the only thing that surpasses food cost is transportation. As a single person living a modest lifestyle, you can expect to cough up around $122 each week for food.
Couples living a comfortable lifestyle can spend up to $239 per week on food. If you add up these expenses, you will find that the cost of purchasing food annually can fall anywhere between $6,000 – $12,500.
This indicates that depending on your eating habits, you may need to make bigger savings for a better retirement.
Base Your Retirement Needs On ASFA Standards
The Association of Superannuation Funds of Australia (ASFA) is the body that regulates superannuation in Australia.
This body covers research, advocacy and policy issues around retirement savings for Australians. Most importantly, it also makes recommendations on how much a regular person should have saved before going into retirement.
See below the expected annual expenses for both singles and couples seeking to live a modest (yet comfortable) lifestyle. This is according to recent figures released by ASFA – as per data from the June 2019 quarter.
- A single person living a modest lifestyle – needs $27,814 annually
- A single person living a comfortable lifestyle – needs $43,601 annually
- A couple living a modest lifestyle – needs $40,054 annually
- A couple living a comfortable lifestyle – needs $61,522 annually
It is important to note that a modest lifestyle essentially means “the capability to afford simple basic activities”.
This means that you have:
- A roof over your head
- Ability to pay your bills.
A comfortable lifestyle on the other hand means that you can afford the nicer things in life. Such as leisure and recreational activities, a private health insurance plan, fine clothes, gadgets and the occasional exotic holiday.
The type of lifestyle that you want to live during retirement will have a huge impact on your savings goals, explains neuro-training experts Shenko Vitality. They add “it is important to decide the type of lifestyle that you want to live in your golden years early so that you can save towards the lifestyle. This involves really identifying what you value and how you see your future self. If you do not do this, your savings at the time of retirement will choose your lifestyle for you.”
By now, we have outlined how you can calculate the savings you need to retire.
So, how much do you need to save for your retirement and how are you going about planning your savings?