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How Much Income do I Need to Retire?

Many Australians have a clear picture of the lifestyle they want to enjoy when they retire, but perhaps less is understood about the level of income required to achieve it. Whether you envision buying a brand-new caravan to set off around the country, construct a workshop out the back of your home to focus on a hobby, or maybe you have a totally unique retirement lifestyle in mind.

Regardless of what it looks like in your head, it takes careful and considered planning to ensure you have sufficient income to fund your daily essentials, health & fitness needs, hobbies and interests, and connection with friends and family. Key in this planning is knowing the level of income you’re likely to need when it comes time to retire.

The Annual Cost of Retirement

According to the March Quarter 2023 retirement standard published by The Association of Superannuation Funds of Australia (ASFA), the minimum annual cost of a “comfortable” retirement is $50,004 for singles and $70,482 for couples aged 65-84, assuming they own their own home and are in relatively good health. Note these figures have increased by nearly $5,000 p.a. for singles and $7,000 for couples since we last covered this topic in September 2021. This is partly as a result of the rising cost of living and inflationary pressures, and each quarterly update from ASFA reflects changes to the Consumer Price Index (CPI).

ASFA also defines the income required for a “modest” retirement lifestyle at that same age, $31,785 for singles and $45,808 for couples. Both of these figures have also seen significant increases (around $3,000 p.a.) since September 2021. Retirees living a “modest” lifestyle pursue fewer leisure and social activities and exercise less frequently than those living “comfortably”, and would also hold basic health insurance as opposed to more comprehensive private insurance.

What a “Comfortable” Retirement Lifestyle Entails

ASFA breaks down a comfortable lifestyle into four distinct categories:

• Daily Essentials: Housing; Groceries; Transport; Clothing/Footwear
• Staying Fit & Healthy: Private, comprehensive health insurance; medical appointments including doctor/specialist visits; exercise expenses (e.g. aquarobics, yoga, bowls, dance classes)
• Staying Socially Engaged: Movies; streaming services (e.g. Netflix); club membership
• Connecting with Family: Computer/laptop; internet; mobile phone plan; interstate flights once annually; international flights once every seven years

Obviously, different people will apportion their expenses within each category differently, and may have some additional expenditure outside of these. Further to this, people define “comfortable” in different ways. For instance, some retirees wish to put aside a certain amount of money for their family (perhaps their grandchildren) on a regular basis. For others, it may be more frequent travel or taking up a new hobby or interest. When you start your own retirement planning journey, you’ll need to factor in the expenses you’re likely to incur in each of these categories and more.

Planning for Your Required Income in Retirement

Upon reading the figures raised in the standard, and considering your own situation, you might have concerns about whether you’ll be able to adequately fund the retirement lifestyle you desire. Young Australians in particular appear to have the idea that they need closer to the $100k p.a. mark to retire. No matter how far away you are from leaving the workforce behind, it’s never too early to start taking practical steps towards securing your financial future. Some people can commit more money to their superannuation fund, adjust their investments or alter their spending habits to “bridge the gap” well in advance of retirement age. At the end of the day, it’s important to seek professional financial advice before making any final decisions.

How MP+ Can Help

The Wealth team at McKinley Plowman have unparalleled experience in retirement planning and ensuring our clients not only meet their lifestyle expectations when they retire, but ideally exceed them. This, of course, relies on having enough income to retire. To see what we could do for you, don’t hesitate to get in touch with us on 08 9301 2200, or via our website.

Please note the information provided within this article is general of nature and is not a personal advice recommendation. Prior to considering strategies discussed in this article we recommend you seek personal financial advice. Please be aware that, without the benefit of financial advice, you may be committing yourself to financial strategies or products that are not appropriate for your overall personal situation, needs and objectives.

Data from: ASFA Retirement Standard March Quarter 2023

written by:

Aaron McCracken

Aaron has over twenty years of experience in the financial services industry working with large companies and small businesses across all aspects of financial planning. He has broad experience across superannuation (including self-managed superannuation), investments, estate planning and personal insurance, retirement planning and business succession planning.
Aaron is passionate about the value of professional, client-focused advice and enjoys working closely with clients to help them make smart decisions with their money, as well as aiding them to clarify and achieve their financial aspirations.