13 Jul 2020
Cost of Living in Retirement: How much do I need?
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
A ‘comfortable lifestyle’ in retirement is one that allows for a broad range of leisure and recreational activities and to have a good standard of living through the purchase of things such as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment and domestic plus occasionally international holiday travel.
According to ASFA (Association of Superannuation Funds of Australia) you need $62,435 per annum if you are a 65 year old retired couple who owns your own home and wants to meet this definition of a ‘comfortable lifestyle’ in retirement.
Click for table.
If we assume a 6.9% per annum rate of return and an inflation rate of 3.0% per annum (currently 2.2% per annum according to RBA) and if you are age 65 today you will need $1,230,000 in addition to owning your own home to receive $62,435 per annum in real terms for the next 35 years after which time the capital will be exhausted.
Alternatively, a couple could rely on the Age Pension but it will only pay $37,014 per annum and the couple will need to wait unit age 67 to qualify if born after 1 January 1957.
| Date of Birth Qualification
| 1 January 1949 to 30 June 1952
| 1 July 1952 to 31 December 1953
||65 years and 6 months
| 1 January 1954 to 30 June 1955
| 1 July 1955 to 31 December 1956
||66 years and 6 months
| On or after 1 January 1957
The Age Pension also has an Asset Test which will result in disqualification where a couple homeowner currently has over $876,500 in assets in addition to their home.
Click for chart.
We have been asked ‘How much do I need’ for three decades and what we know is that pursuing an Age Pension strategy for retirement is NOT recommended.
The current number is $1,230,000 today in addition to owning a home and should serve as a stark reminder of why it is important to keep saving and accumulating for retirement.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.