How much do we really need to retire in comfort?

As you look forward to full-time or part-time retirement in your future, there’s a massive question most people need answered to build up their confidence to set a retirement date: how much money do you really need to retire in comfort? It seems like such a simple question, surely it has a simple answer. Well, it does – sort of.

The Association of Superfunds Australia (ASFA) releases their retirement cost of living benchmarking quarterly. The latest numbers say that single people who will be eligible for the age pension, and own their own home outright will need an annual income of $50,207, while couples will need $70,806 to afford a comfortable retirement.

How much money do you really need to retire in comfort? It seems like such a simple question, but the answer is not so easy.Credit: Getty

Assuming a lifespan of 88, they say that single people need to have a superannuation balance of $595,000 and couples will have to have a balance of $690,000 when they retire.

These comfortable retirement budgets assume a certain standard of living that most people want to be able to afford, but certainly not everyone will be able to. It expects that you’ll have a lifestyle that includes the purchase of comprehensive health insurance, owning your own reasonable quality car, and can afford to buy fashionable clothing and footwear fairly regularly.

It also assumes that you will want to run air conditioning for heating and cooling. It budgets for you to take one domestic holiday to visit family per year and a simple international holiday every seven years. And it affords enough for you to participate actively in leisure activities like going to the club or the movies.

It does not offer you enough money to take regular holidays, undertake sizable home renovations or maintain and upgrade a fancy new car, allowing only for modest renovations every 20 years. And it certainly does not allow for rent payments, although if you are eligible for a part-pension you will also be able to qualify for rent assistance which will offer some support. Nor does it accommodate the payment of significant body corporate fees.

A comfortable retirement budget allocates enough money to afford top-level private health insurance, which we know costs somewhere close to $3000 for a single person and $5500 for a couple.

It also factors in funds for specialist visits and pharmacy purchases. Finally, a comfortable budget allows for occasional restaurant meals, takeaways and home delivery, and an occasional store-bought coffee too.

When I discuss a comfortable retirement, I find the definition is very different depending on where and how you live and what your goals are. Some people don’t think they could possibly be comfortable on less than $100,000 per year, while others say they are perfectly comfortable, if careful with their money, on $55,000 or $60,000.

So let me guide you through the steps to working out your own magic number, or at least to build an indicatory set of numbers you can use in your planning. I also cover off this topic in more detail in this week’s podcast, which you can listen to here.

1. Start with your retirement vision. There’s a step we often leave out in these preparation years, and that is building a vision of what our part-time retirement and full-time retirement can be like.

Talk to your partner about your individual goals and shared goals. Then think about how old, how healthy, how active, and how busy you want to be. Hold on to that picture as you move into the next step.

2. Build yourself a cost-of-living budget. Take the time to work line item by line item through a budgeting process, and build out a budget that takes in your vision and extrapolates the amount of money you want to be able to allocate to it in your cost of living and lifestyle budget each year.

Build the first version of the budget based on your vision, and then evaluate its feasibility when you’re finished.

3. Contemplate the cost of your big retirement goals. The ASFA retirement benchmarks don’t allow for big ticket spending on your retirement dream holidays or caravanning adventures.

Nor do they allow funds for one-off or significant family moments like weddings, anniversaries or multi-generational holidays, or helping your kids financially. Each of these things, or any other more epic experiences you want to have need to be budgeted for individually.

4. Understand your household’s superannuation. For most people who are married or coupled, which is the majority of those approaching and in retirement, understanding their future super balance is not an individual exercise built on one-person’s numbers alone. It’s a couple-based approach, adding some complexity to calculations.

You have to take in the current balance of both people’s funds today, the potential for compound investment returns in the years leading up to retirement, and the dates that each individual can access their superannuation and the age pension. You may also want to think about your wider strategy here.

5. Get advice. Once you’ve got a picture of what you want your retirement to look like, you’ve drafted your first budget, and you’ve taken a deeper look at your superannuation, you may then find it a good time to seek out some financial advice.

If you are the customer of a major superannuation fund, you will probably find they have a few options available for free advice paid for under your annual service fee - so you may as well access it. Or if you and your partner’s money is spread across more than one fund, you might find you need independent advice.

Bec Wilson is the author of the bestselling book How to Have an Epic Retirement and host of the new podcast Prime Time with Bec Wilson. She writes a weekly newsletter at epicretirement.net.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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