How much do you really need to retire?

After 30 years of the Superannuation Guarantee, Aussies are reasonably well informed about super and how it works. 

One area that remains a mystery is how much super we need to retire.  

There is no one-size-fits-all answer. Retirement funding is very personal. You may have grand plans to travel the world in style. Or you may be keen to use retirement to try your hand at new hobbies or sports.  

For other Australians, the retirement dream is all about relaxation, pottering in the garden, and sharing time with friends and family. 

While your preferred lifestyle will shape the level of super savings you need, it's not the only factor. 

Life expectancy is a major issue - and one that cannot be predicted with any great accuracy. 

Or you may be among the three in four Australians who want to leave part of your super as an inheritance. 

The upshot is that there is no hard and fast number that describes the ideal super balance we each need to retire.  

Various guidelines are available though they can differ greatly depending on the underlying assumptions. Let's take a closer look. 

ASFA's numbers 

Super industry body ASFA, produces a quarterly retirement standard that sets out the sort of spending needed to enjoy a 'comfortable' or a 'modest' lifestyle.  

ASFA's latest (June 2024) figures show that a single retiree needs to spend $52,085 annually for a 'comfortable' lifestyle while a couple needs $73,337 combined.  

For a 'modest' lifestyle, a single person needs to spend $33,134 each year. For a couple, it's about $47,731 a year. These numbers all assume debt-free home ownership.  

Retirement budgets for those aged 65-84 

Source: ASFA

The thing is, the maximum age pension is worth about $29,000 annually for a single person.  So, funding a comfortable retirement costing $52,085 a year can mean relying on super to meet the remaining $23,085. This spending gap needs to be met not just once or twice, but every year over a retirement that could span two decades or more.  

Clearly, this can call for substantial super savings. According to ASFA, a single person needs around $595,000 in super for a comfortable retirement. A couple requires $690,000 combined.  

The catch-22 is that the more you have in super, the less likely you are to be eligible for the age pension. Indeed, ASFA's numbers for a comfortable lifestyle assume a retiree draws down the full value of their super over their remaining lifespan. 

On the other hand, ASFA says couples and singles only need $100,000 in super for a modest lifestyle. This reflects the impact of receiving the age pension.  

Super Consumers Australia numbers

A different set of numbers (based on August 2023 data) is produced by Super Consumers Australia (SCA). For transparency, the SCA research was funded by a grant from the Ecstra Foundation, of which I am a director. 

According to SCA, a retired single who is happy to get by on as little as $31,000 annually may only need $76,000 in super. The age pension will do most of the heavy lifting. 

At the top end of the scale, a couple with a 'high' level of spending, about $80,000 annually, would need $1.055 million in super to fund their lifestyle. 

Again, all these numbers assume retirees own their home mortgage-free.  

Savings needed by current retirees (aged 65-69) 

If you are single 

Source: Super Consumers Australia

If you are part of a couple 

Source: Super Consumers Australia

The majority of retirees receive the age pension 

While there are differences between the ASFA and SCA results, there is a common thread. The more you have in super, the less you're likely to receive from the age pension. In this way, the pendulum shifts to the point where your super has to do most, or all, of the work meeting living costs. 

That said, reasonably generous thresholds apply before the age pension cuts out completely. 

Singles can own up to $686,250 in assets to receive at least a part-pension plus the various savings and concessions this brings. For couples, the upper limit is $1,031,000. Higher limits apply to renters. 

What's interesting is that these upper limits far exceed the median super balances among 60-somethings ($211,996 for men, and $158,806 for women). This explains why six out of 10 of our over-65s receive income support payments, usually the age pension. 

Super income is tax-free 

One important aspect of retirement planning is that from age 60 withdrawals from super are usually tax-free. This means you can potentially have the same lifestyle, for less income, compared to your working days.  

As a guide, the $55,000 annual spend that Super Consumers Australia describes as a 'high' level of spending for a single retiree, would require a PAYG before-tax income of about $70,000. 

This tax-friendly aspect of superannuation is what makes it such a compelling investment environment for retirement.  

However, along with considering when you'll retire, your preferred retirement lifestyle, and the sort of money you need to fund it, there is another issue to address, and that's the level of debt you take into retirement. 

The Retirement Income Review found more than 50% of owner-occupiers aged 55-64 still carry some mortgage debt. 

Paying off a home loan can be a real income-shrinker in retirement. A solid chunk of your money may need to go towards loan repayments. In addition, your super's underlying investments have to work extra hard to compensate for the high rates of interest that may apply to borrowings. 

This is why it can make a lot of sense to pay down as much debt as possible before hanging up your work boots. 

Where to from here? 

Retirement is a life stage we need to plan and prepare for. That's a no-brainer. And a good start is to understand how it works and what to expect.   

An AMP study found alarming knowledge gaps among Australians aged 50 and over. Two in five don't know if they'll be eligible for the age pension, and seven out of ten are clueless about what an account-based pension is. 

Your super fund can help fill the gaps. Many funds have a wealth of information on retirement as well as offering a general advice service for members. This advice can come at no additional charge as the cost is built into your fund fees. 

There are also plenty of online calculators that can help you understand how much you need to retire.  

The Moneysmart website features a handy Retirement Planner. It shows the annual income you're likely to receive in retirement through a combination of the age pension and super drawdowns. 

If you can afford it, tailored financial advice can help you make the most of all of your assets in retirement. 

The worst thing you can do is put your head in the sand and simply hope it'll all work out.  

As I've noted, retirement is a life stage that can span 20 years or more. That's a long time to live on tea and toast, and after decades in the workforce, you deserve better.  

A little groundwork, and a commitment to growing your super in the run-up to retirement, can help you kick back, relax and enjoy life with minimal financial concerns when you're ready to exit the world of work.