Retirement: too much is never enough!

With our ever-increasing life expectancies, many of us now spend upwards of 20 years in retirement. However, even for the optimists, it’s not necessarily one long holiday. While retirement is a stage of life that can be packed with new adventures, people and places, many of these delights come at a price.

Without careful planning, you could find yourself with less money than you need to maintain your ideal lifestyle.

How much will I need?

It’s a tricky question, and really there’s no right or wrong answer because everyone’s goals, needs and lifestyle expectations are different. But one thing is certain – relying purely on the age pension is unlikely to give you a comfortable lifestyle in retirement. According to the ASFA Retirement Standard for September 2014, that requires an income of $58,326 a year for a couple who owns their home, or $42,597 for a single person. For a modest lifestyle, it’s $33,784 for a couple and $23,489 for a single person.1 A 'modest’ budget allows for the basics but very little else. It’s better than the age pension but eating out, entertaining, travel and social activities are quite limited. A ‘comfortable’ budget goes a long way towards improving the enjoyment, comfort and freedom you can expect in retirement. It allows you to engage in a broad range of leisure and recreational activities and maintain a better standard of living. Ultimately, how much you’ll need depends on your lifestyle goals. If you prefer leisurely pursuits like visiting family and friends, reading and gardening then a modest budget should be suitable. But if you’re keen to sample more active endeavours like travel, sport and hobbies then you’ll need a more generous budget!

What size nest egg will I need?

Once you have a good idea of how much income you’ll need, you can calculate the size of the nest egg required to generate that income. You can do this with the aid of a superannuation calculator or, for a more tailored approach, with the help of a financial planner.

As a guide, a couple who wants the ‘comfortable lifestyle’ income of $58,326 (incorporating income from superannuation and the age pension) would need to accumulate a super balance at age 65 of around $860,000.2

This assumes you’ll live as long as the average person and are prepared to accept some exposure to shares or property within your super fund. If you live longer or adopt a more conservative approach to investing, you’ll need a larger nest egg.

How can I grow my nest egg?

Since the introduction of annual contribution limits, it hasn’t been as easy to wait until you’re close to retirement to ramp up your superannuation contributions. So if you want to take advantage of the tax effective environment of superannuation, it makes sense to drip feed additional contributions.

The earlier you start investing in super, the sooner you can take advantage of benefits like compound interest, salary sacrifice arrangements and even the government co-contribution scheme.

If you’re not in a hurry to retire, or don't have as much as you need, don’t forget that you can access super tax free once you reach age 60 so it may be worthwhile waiting. Because we’re living longer and enjoying good quality of life in retirement, many people will opt to continue working in retirement, even if it’s part-time or voluntary work.

1. ASFA Retirement Standard, September 2014 2. Assumptions: Return 6% pa after fees; Nil earnings tax; Inflation 3.0% 

This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financialsituation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.