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The ultimate retirement question Posted on October 9, 2018
The Association of Super Funds of Australia (ASFA) has released an updated ASFA Retirement Standard that is considered the gold standard for the planning of retirement dollar amounts. It is updated quarterly to take into account matters such as inflation, changes in living standards and evolving spending patterns. Costs considered include communications, energy, food, clothing, household goods and services, health, transport and leisure.
‘Basic’ could be defined as living on the Age Pension. Without including supplements, the basic Age Pension payments currently top out at $19,076.20 annually for an individual or $28,761.20 for a couple. That’s just $367 per week for an individual or $553 per week for a couple.
A ‘modest’ lifestyle, it says, requires a budget of $22,641 annually for an individual or $32,603 for a couple, which is not far above the Age Pension. This enables only basic activities and does not allow private health insurance, regular travel, purchase of a reasonable car, good clothes or a range of electronic equipment.
A ‘comfortable’ lifestyle which does include the above, including an occasional economy-class international holiday, an occasional renovation of a kitchen or bathroom, the ability to entertain family and friends at home etc, requires $41,169 annually for an individual or $56,317 for a couple.
Importantly, both the modest and comfortable budgets assume the outright ownership of a home and the relative good health of the individual/couple.
Lump sums required at retirement to achieve these goals are relatively low for the modest lifestyle, coming in at $50,000 for an individual and $35,000 for a couple, as most of the funds will come from the Age Pension as long as the individuals qualify. But as the population ages it is worth asking whether you want to rely on the Age Pension.
The lump sum required for a comfortable lifestyle, assuming 7% return and receipt of part of the Age Pension, is $510,000 for a couple and $430,000 for an individual. The figures assume a retirement age of 65, with payment projected to run out when the person or couple are in their early 90s and living on the Age Pension only after this date.
Of course, final income relies on investment returns, life span and whether the investor would like to leave any money behind in a will.