Retirement savings: why you’re unikely to run out of money

Want to retire without financial fears? Here’s why you’ll probably need less money than you think.

For a country with lots of laid-back larrikins, we Aussies worry about money a lot.

Especially when it comes to our retirement nest eggs, and more specifically, how quickly those nest eggs will shrink after we stop working.

Understanding exactly how much money you’ll need to retire comfortably is virtually impossible, because there are too many variables. Health, lifespan, lifestyle, income needs, inheritances, pension income and family demands are among the factors that can affect how much retirees spend and keep.

However, almost every financial adviser I speak with tells me that a vast majority of clients spend less in retirement because they worry they will outlive their super, when actually the reverse is true.

Financial planners find many retirees are overly-conservative. Picture: iStock

We’re generally too conservative, and end up going to our graves without spending all our wealth. That’s good news for the kids and grandkids, but not so good for the retirees who unnecessarily sacrifice experiences and comfort during their golden years.

While it’s tough to predict nest egg needs – we could die at 67 or 107 – there have been plenty of efforts to make decent projections.

The most widely-used figure is the ASFA Retirement Standard, which has been published quarterly for two decades. Its latest analysis says a couple needs $73,077 of income each year for a comfortable retirement and a single needs $51,805.

ASFA says achieving that level of income, through a combination of superannuation and the age pension, requires a couple to have a combined super balance of $690,000 and a single $595,000.

They’re pretty big numbers, but the good news for younger workers is our superannuation system is likely to cover most of that, thanks to 12 per cent compulsory super. The average super balance for a 30-year old today is about $50,000, and if we assume they’re earning an income of $70,000 a year a single person can grow their super to more than $530,000, according to ASIC’s superannuation calculator.

It’s even better news for couples because they have two incomes and two super balances growing over many decades, and can share household expenses in retirement.

However, ASFA’s numbers have had their detractors. Super Consumers Australia claims ASFA’s modelling is too broad and its figures inflated, which could cause people to disengage from their super.

Super Consumers Australia says it has analysed Australia Bureau of Statistics and retiree spending data to come up with “medium” range savings targets of $421,000 for a couple and $310,000 for a single.

Income stream provider Optimum Pensions also has lower numbers. It says to reach ASFA’s spending levels, using the age pension, superannuation and lifetime income products, a couple requires $570,000 and a single $488,000.

It also has a free lifespan calculator, but be prepared to be told you could live to 100.

Another key reason why most of us won’t run out of money is because we spend less as we age. The first decade or so of retirement costs the most, so include this in your calculations, and don’t be scared to draw down on your super nest egg – that’s what it’s designed for.

There’s always the age pension safety net. Couples usually get some pension even if they own their own home plus $1m in other assets. As their assets reduce, age pension payments will pick up, and it’s a decent addition to super income.

A full pension for a couple pays $45,037 combined each year, and for a single it pays $29,874.

Go on and enjoy retirement, because the chances of running out of money are low for most of us.

Originally published as Retirement savings: why you’re unikely to run out of money