It’s a common question. And there’s no easy answer for the simple reason that everyone’s personal financial circumstances and goals are very different.

The starting point is to consider what sort of lifestyle you want in retirement.

That’s also a tough question. What’s a modest lifestyle and what’s a comfortable lifestyle? And what’s the difference in cost? Also, if you are renting when you want to finish work, this has a significant impact on the amount you need.

Fortunately, these questions have been considered by super industry body ASFA. In a media release, ASFA outlined the differences between people are who renting and those owning their own home for people trying to estimate the cost of funding ‘modest’ and ‘comfortable’ retirement lifestyles.

With house prices continuing to grow substantially, especially in Sydney and Melbourne, owning your own home is becoming more of a dream than a reality for many, this new research is particularly relevant.

Before we look at ASFA’s numbers, we need to remember that super is only one of three pillars of our retirement income system. Most people will use their super in conjunction with the age pension and savings outside super to deliver a ‘reasonable’ retirement lifestyle.

So what’s reasonable? And how much do you need to fund a reasonable retirement lifestyle?

A comfortable lifestyle

According to ASFA, a single retiree renting a one-bedroom unit in Sydney will need to spend $62,434 annually to be comfortable while a couple renting a two-bedroom unit will need to spend $79,801. This compares with annual budget for home owners in Sydney of around $43,300 for singles and $59,600 for couples.

A comfortable retirement lifestyle incorporates things like upgrades to household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.

A modest lifestyle

Modest, on the other hand, means slightly better than life on the age pension but still only very basic activities. ASFA estimates the annual income to fund a modest lifestyle at around $34,687^1.

The table below shows the differences between singles and couples who are renting and those who own their own home.

  Single renting Couple renting Single home owner Couple homeowner
Modest lifestyle $35,851 pa
$465.10 pw
$51,760 pa
$995.38 pw
$24,108 pa
$463.61 pw
$34,687pa
$667.05 pw
Comfortable lifestyle $43,665 pa
$837.41 pw
$79,801 pa
$15, 346 pw
$43,665 pa
$837.41 pw
$59,971 pa
$1,150.13 pw

Figures above are based on Sydney^1

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So how much is needed to produce this annual income?

Calculations by ASFA^1 show that a single person retiring at 65 who is renting would need a lump sum of $1,045,000 in Sydney or $940,000 in Melbourne while a couple who are renting would need $1,166,000 (Syd) or $1,150,000 (Mel) to fund a comfortable retirement.

That’s a pretty big number. For the many people with a lower super balance, a realistic target might be something between modest and comfortable.

For a modest retirement the figures^1 drop dramatically. A single renter in Sydney would need $320,000 or $325,000 in Melbourne or a couple would need $450,000 or $396,000.

Retirees renting - single^1
  Modest lifestyle annual expenditure - couple Modest lifestyle - lump sum needed at retirement Comfortable lifestyle annual expenditure - couple  Comfortable lifestyle
– lump sum needed at retirement
Canberra $38,121 $352,000 $59,729 $977,000
Sydney $36,851 $320,000 $62,434 $1,045,000
Melbourne $37,033 $325,000 $58,200 $940,000
Brisbane $37,033 $325,000 $58,143 $940,000
Adelaide $33,741 $243,000 $54,551 $848,000
Perth $33,483 $236,000 $54,979 $859,000
Hobart $33,794 $245,000 $54,992 $859,000
Darwin $36,768 $320,000 $57,323 $917,000
Retirees renting - couple^1
  Modest lifestyle annual expenditure - couple Modest lifestyle - lump sum needed at retirement Comfortable lifestyle annual expenditure - couple  Comfortable lifestyle
– lump sum needed at retirement
Canberra $48,610 $376,000 $78,910 $1,150,000
Sydney $51,570 $450,000 $79,801 $1,166,000
Melbourne $49,402 $396,000 $77,472 $1,115,000
Brisbane $49,368 $395,000 $77,342 $1,112,000
Adelaide $45,495 $300,000 $73,447 $1,015,000
Perth $45,627 $300,000 $73,779 $1,022,000
Hobart $45,396 $295,000 $73,514 $1,016,000
Darwin $48,653 $377,000 $75,837 $1,074,000

Making the most of it

The good news is that even a small super balance can improve your retirement lifestyle. The Australian Institute of Superannuation Trustees (AIST) estimates that the combination of age pension and an income stream taken even from a relatively modest super balance of $100,000 could boost your weekly income by $110, enough to meet the ‘modest’ retirement standard, providing you own your own home.

The fundamental point of the AIST’s Super Reality Check report was that, if you’ve got a low super balance, there’s no need to be down about it.

That’s not to say you shouldn’t do everything you can to maximise your retirement savings. But don’t feel demoralised if a million-dollar nest egg is out of reach. A smaller balance can still make a big difference, and every little bit extra that you put away will help supplement the age pension and fund a better lifestyle in retirement.

Need help?

If you want to find out more on how to grow your super to achieve the lifestyle you want in retirement, we’re here to help you.

Book an appointment or give us a call today 1300 650 873.
 

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  1. ASFA Retirement Standard, March quarter 2017

  2. The lump sum required for a comfortable retirement assumes that the retirees will draw down all their capital, and receive a part Age Pension.