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How Much Money do you Need?

Calculating how much Money you need for your Retirement

This is a difficult question which attracts considerable, ongoing discussion, and will continue to do so. But it is worthwhile understanding why answering the question in any reasonable fashion is difficult, so that you can place your own situation in perspective.

Essentially, most approaches to answering the question, "how much?", involve assessing how much income an individual or couple will need throughout their retirement on an annual basis - and then, using some estimates regarding investment returns, calculating the lump sum or capital necessary to generate that income.

So, while the calculation is not intrinsically difficult, it is the variables that are (extremely) problematic - they include:

  • Your date of retirement and life expectancy
  • Your intended lifestyle in retirement, for example whether it will likely be "modest", "comfortable" or "exuberant", and
  • Your earnings within and outside superannuation

However, the mere fact the calculations are difficult, does not mean that some attempt to quantify how much is needed for retirement doesn't provide a useful guide for future retirees. The "art" is in understanding how these measurements were arrived at and adjusting them to your own particular situation.

One guide that is continually referenced is the Australian Superannuation Funds Association (ASFA) Retirement Living Standard. This standard generates weekly budgets for ‘modest’ and ‘comfortable’ standards of living for singles and couples in retirement at aged 65+ and 85+.

The ASFA standard defines "modest" and "comfortable" lifestyles as follows:

Modest lifestyle in retirement - a better lifestyle than that provided by the Age Pension, but limited to fairly basic activities.
A more comfortable lifestyle in retirement - enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

The March 2022 figures are summarised below and ASFA have a Retirement Calculator where you can see the expenditure components and make your own adjustments.

Annual Budgets for those Aged around 65
(March 2022)

Modest Lifestyle
Comfortable Lifestyle

Annual Budgets for those Aged around 85
(March 2022)

Modest Lifestyle
Comfortable Lifestyle

You should appreciate that these figures assume that you own your home and no longer pay rental or mortgage costs in retirement and make little provision for capital outlays, like replacing a car. Significantly more income or a larger supporting lump sum is needed by retirees in rented accommodation or who have a continuing mortgage.

What sort of lump sum is required to support these income streams above? ASFA estimates the lump sum needed to support a comfortable lifestyle for a couple is $640,000 (or $545,000 for a single person) assuming access to a partial age pension.

We think these amounts are inadequate, particularly if you conservatively assume that access to an age pension will become more restricted over time, and the lump sum required to support a comfortable lifestyle is significantly above the current average pension balance at retirement.

Below we make a few modest comments of our own about any attempt to calculate how much retirement income you will require:

  • Obviously, the longer an individual spends in the workforce, the shorter the retirement duration they need to finance. We are very big proponents of individuals working as long as possible consistent with their own health, well-being and preferences - gradually winding down their workforce involvement and "easing" into retirement.
  • The "monster in the woodpile" is the level of uncertainty about a range of matters - including longevity, investment returns and costs. We look at retirement income in more detail in the website, but almost as big a problem as ensuring that you have enough money for your retirement is the problem of retirees actually "over saving" during retirement. Retirees often don't enjoy themselves because of concerns that they will "outlive" their capital and because they want to ensure that they "always have enough" to meet any eventuality, and
  • We are almost certainly going to see the Government further restrict or cap the amount that can be invested in superannuation. Quite legitimately, the focus of superannuation should be to support retirement only, not tax minimisation or wealth strategies. Consequently, any planning for retirement will need to extend beyond just superannuation for many people. The question is not just whether you have sufficient superannuation, but adequate supporting funds and investments, whatever form they may take.

In general terms, and particularly for people reading this website who intend to be self-funded retirees, we feel more comfortable with individuals planning to have an initial superannuation income of about 60% - 65% of pre-retirement income. This is the target figure often quoted by financial planners, who have a vested interest in increasing investments under management, but it nevertheless seems a target which better reflects individual circumstances - subject to some commonsense boundaries.


If you would like to arrange professional advice in relation to the above matters, please complete the Inquiry form below providing details and you will be contacted accordingly. You will receive a fee quotation in advance of any advice or services being provided.