It’s one of the most common questions people ask as they get older and are still working. You should get professional advice based on your specific financial situation and goals to answer this question, but here is some general information to consider.
The four key factors
How much money you need to retire depends on:
- The type of lifestyle that you want to lead in retirement
- Whether or not you own your own home
- The age that you retire
- How long you live.
The first three of those factors are what we know and can control. But no one knows exactly how long they will live.
According to the latest figures from the Australian Institute of Health and Welfare, the average life expectancy for men is 85. It’s 88 for women. That means if you retire at 60 and you live to an average age, you will need to fund a retirement lasting 25 to 30 years.
Every year, the Association of Super Funds Australia (ASFA) publishes a retirement standard that outlines how much money you need to live in retirement based on whether you want to lead a “modest” or “comfortable” lifestyle.
The current standards are outlined in the table below and assume that you own your own home and will live to the age of 85.
| Lifestyle | Average Weekly Expenses | Lump Sum Needed at Retirement |
| Single with a modest lifestyle | $575 | $70,000 |
| Couple with a modest lifestyle | $828 | $70,000 |
| Single with a comfortable lifestyle | $907 | $545,000 |
| Couple with a comfortable lifestyle | $1,278 | $640,000 |
As the term suggests, a ‘modest lifestyle’ includes meeting the costs of life’s necessities. It can be covered by the Age Pension.
A comfortable lifestyle on the other hand includes more non-essential expenses such as travel, holidays, entertainment, private health insurance, and the ability to afford a better car or household items.
It’s important to understand that your non-essential expenses are likely to reduce as you get older. For example, your heaviest spending years may be in the early years of your retirement if you want to travel.
Strategies to help you retire comfortably
Superannuation and the Age Pension help to fund the retirements of most Australians. It’s possible to use both sources if you meet the Age Pension eligibility requirements.
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Most people can’t access their super until they retire after turning 60. The Age Pension eligibility age will soon increase to 67 for all Australians. You also have to pass Income and Assets tests to be eligible for a full or part Age Pension. If you plan to retire at 60 there’s a seven-year period where you’ll need to have enough money to fund your own retirement.
The current full Age Pension rates per fortnight in Australia are listed below. They are reviewed every six months. Once you turn 67, you may still be entitled to a part Age Pension if your assets and income don’t exceed maximum thresholds.
| Single | Couple |
| $1,026.50 | $1,547.60 (total combined) |
Converting your super to a regular income stream
You can convert your super into a regular income stream by creating an account-based pension. You could also convert your super lump sum to an annuity to achieve the same thing. Note that both of these options will provide you with your own self-funded pension. You may still be entitled to a full or part Age Pension on top of your super pension.
Downsizing to release the equity in your home
Downsizing is also becoming an increasingly popular way for Australians to fund their retirement. It’s where you buy a smaller, cheaper home to free up some of the money you have tied up in your home. You can then use that cash to help you fund your retirement.
The family home is the largest financial asset for most Australians, but it’s not a liquid asset. Many older Australians also find that their family home is too big for their needs once they become ‘empty nesters’.
Downsizing is a solution to this problem, and it’s also one that’s encouraged by the government from a tax perspective. You can contribute up to 300K from the sale of your home into your super to boost your retirement funds. It’s called a downsizer contribution.
Buying into retirement villages or land lease communities are common ways to downsize. The best of these options have a range of over 55 properties that encourage a ‘lock and leave lifestyle’. They can help you to make the most of your retirement living.
Want to learn more about making the most of your next 30 years?
We’re committed to making life better for the over 55s. Check out downsizing.com.au for more insights and great advice on living life to the fullest.
