You don’t need as much for retirement as the experts say
It’s become the accepted wisdom in retirement planning that you’ll need a million dollars to retire comfortably today.
But in this week’s Sydney Morning Herald column, Money editor Caitlin Fitzsimmons debunks the myth. In fact, she says it might not be as dire as you may think.
The accepted standard
The Association of Superannuation Funds of Australia (ASFA) suggests that a single person needs $24,250 a year for a "modest" standard of living in retirement, while a couple needs $34,855.
For a “comfortable" living standard for retirement, ASFA says a single person needs $43,665 and a couple will need $59,971.
What the money experts think
At two retirement planning events on the weekend, Fitzsimmons posed the question to a panel of money specialists – Fairfax columnists Noel Whittaker, Nicole Pedersen-McKinnon and Ross Gittins, and Grattan Institute chief executive John Daley.
Daley noted that the “modest” lifestyle, according to ASFA, is close to the lifestyle on the age pensions. However, a “comfortable” lifestyle is more akin to an “affluent” lifestyle, with expenditures on holidays, big grocery budgets and entertainment.
He says the ASFA standard for “comfortable” is a better lifestyle than more than half of Australian households before they retire.
"If you want to have a retirement in which you have more to spend, by definition you'll have to have a life before retirement in which you have less to spend," Daley says. "We'd all love to be rich, I'd love to have an income in retirement of $300,000, but that doesn't mean that's going to be the right choice for me, and it certainly doesn't mean that I should get a whole bunch of tax concessions to get there."
ASFA says the success of its comfortable standard is because it reflects what many or most Australians aspire to.
Workforce surveys show most people aspire to a retirement income that is close to or exceeds the ASFA comfortable standard.
ASFA also says people do not see the age pension alone as providing an adequate income in retirement.
What to remember
As Fitzsimmons reminds, that $60,000 in retirement is not the same as $60,000 before retirement. Before retirement, you need to pay tax, whereas ASFA standard is about spending money (not saving it).
For those wanting to achieve a comfortable lifestyle, ASFA says a couple needs $640,000 and a single needs $545,000. Less than the one million dollar figure.
So don’t put off retirement just because you haven’t achieved the right amount. There isn't one.