personal finance planning

A comfortable retirement: How much super is enough?
By Trish Power onFebruary 27, 2009
This article is updated every few months with the latest lifestyle/income data. The most
recent update is February 2010 (for lifestyle costs up to December 2009).
So, the big question is: how much money do you really need for your retirement?
Lifestyle is a very personal thing — luxury living for one person is a modest existence for
someone else. I don’t intend to suggest the exact lifestyle you must choose for your
retirement years but I can offer you some guidance on the amount of money you need if you
want to cover your basic living costs and support a hobby or active social life. For example,
do you expect to take frequent holidays and are you planning to enjoy regular glasses of
wine or beer?
Choosing a lifestyle is simple — you live the life you can afford. If you want a more
salubrious lifestyle, you save more, earn more, win the lottery orinherit lots of money from a
rich relative. The same philosophy applies to your retirement lifestyle.
Covering basic living costs, and more
Clearly, the one constant for every Australian inretirement is meeting basic living costs.
Thanks to a groundbreaking study originally released in February 2004 and now updated
every three months or so, I can tell you, with some authority, how much money you need to
live on each year in retirement, depending on the lifestyle that you want to have. The study,
known as the ‘Westpac–ASFA Retirement Standard’, measuresthe cost of a modest or
comfortable lifestyle in retirement, in dollar terms, and adjusts these costs quarterly in line
with the cost of living. The lifestyle costs in this article reflect the cost adjustments as at 31
December 2009.
The Westpac–ASFA Retirement Standard study is groundbreaking because Australians now
have a tangible savings target with a clear idea of what type of lifestylethat amount of money
can give them in retirement. Assuming you own your own home, you need the following
amounts of money, after tax, to give a single person, or a couple,a basic, modest or
comfortable lifestyle:
• Basic lifestyle (Age Pension only — $17,469 a year, or $26,338 for a couple,
including pension supplement, as at 20 September 2009). The single Age
Pension now represents 27.7 percent of Male Total Average Weekly Earnings. Are
you willing to live on 27.7 per cent of an average Australian’s income? Living solely
on the Age Pension gives you a basic income and access to discounts on health
services and energy costs. While this figure is an amount you can survive on, many
Australians don’t expect to live within thislevel of income by choice. (The Age
Pension is adjusted every six months, with next adjustment in March 2010).
• Modest lifestyle ($19,996 a year, or $28,080 for a couple). Receiving an after-tax
income that is slightly higher than the Age Pension obviously gives you a better
lifestyle than living solely on social security, but you can only afford low-cost
• Comfortable lifestyle ($38,611 a year, or $51,727 for a couple). Living on this level
of after-tax income means you can enjoy more recreational activities. Also, you can
afford to purchase private health insurance, higher quality household goods and
travel regularly. Even so, a ‘comfortable’ lifestyle isn’t outlandish.
Note:If you take an income stream from a super fund or withdraw lump sums from the super
system, you can expect to pay no tax on yourincome, provided you’re aged 60 or over
(excepting some public servants, who may have to pay a small amount of tax). Even when
you’re under the age of 60, with the help of good tax advice, you can earn the amounts
necessary for a modest or comfortable lifestyle without paying a cent of tax.
Comparing a modest with a comfortable lifestyle
What does a ‘comfortable’ lifestyle of nearly $39,000 a year (for a single person), buy you
that a ‘modest’ lifestyle ($20,000 a year) can’t? According tothe Westpac–ASFA Retirement
Standard, a comfortable lifestyle represents ‘a standard of living among older, healthy and
fully active self-funded retired Australians that allows them toengage actively with a broad
range of leisure and recreational activities without having to forgo the consumption levels
expected by other comfortably affluent people . . .’ In other words, you can do the following
• Eat out regularly (three times a week at an RSL or a cheap restaurant, or once a
week at a more expensive restaurant)
• Have guests for dinner, such as family members, once a fortnight
• Buy some magazines, CDs and DVDs
• Take out the top rate of private health insurance cover
• Drive a relatively new car rather than an old bomb
• Enjoy seven alcoholic drinks each week
• Invest in a home security system
• Visit the hairdresser on any day rather than waiting for the pensioner specials
• Replace whitegoods and update your kitchen or do other renovations when
• Have an overseas holiday once every five years and take up to ten short trips each
year within Australia
• Use your personal computer, mobile phone and digital camera.
What’s your savings target, then?
If you expect to live on more than the Age Pension ($17,469, or $26,338 for a couple, as at
September 2009), you need to find the incomefrom your super and non-super savings.
The table below lists the lump sum amounts that you need to invest on retirement to deliver a
modest or comfortable lifestyle. The lump sumsare based on the assumption that you retire
at the age of 65. You’re going to need smaller lump sum amounts if you’re eligible for the
Age Pension and, in many cases, assuming you structure your finances appropriately, you’re
likely to be eligible for atleast a part-Age Pension.
If you retire before Age Pension age, that is, 65 (if you’re a man), or at least 63½ years (if
you’re a woman, and 64 years from January 2010), then you need a bigger lump sum than
those shown in the table because you have to finance a longerlife in retirement, and you’re
not going to be eligible to apply for an Age Pension until you reach Age Pension age.
A popular question: What if a ‘comfortable’ life of nearly $39,000 a year (for a single person)
or nearly $52,000 (for a couple) was not what you had in mind for your retirement. Perhaps
you were expecting to enjoy an income of say, $100,000 a year. You can find out how much
money you need for a $100,000-plus a year lifestyle in retirement in the article Setting a
retirement target: Living on more than $50,000 a year.
How much super is enough for your chosen lifestyle?
Couple Single
Lifestyle Annual
Lump Sum Needed
on Retirement
Lump Sum Needed
on Retirement
No Age
No Age
$26,338 N/A $0 $17,469 N/A $0
Modest $28,080 $425,000 About
(+ Full
$19,996 $300,000 About
(+ Full
Comfortable $51,727 $800,000 Less than
$800,000 but
more than
$38,611 $590,000 Less than
$590,000 but
more than
Notes:1. The lump sum amounts are in today’s dollars and assume retirement at the age
of 65.
2. If you retire before you’re eligible for the Age Pension, or you’re otherwise not eligible for
the Age Pension, then the lump sum you need toenjoy each lifestyle is a larger amount
than if you were eligiblefor the Age Pension.
3. If you’re eligible for the Age Pension (see ‘Receives Age Pension’ column), the lump
sum you need in retirement depends on how much Age Pension you expect to receive and
the earnings you can achieve on yoursuper and non-super savings. For the
‘comfortable’ lifestyle, part-Age Pension eligibility is likely for a couple, and a minimal partAge Pension may be possible for a single person. The lump sum amount you need to
invest for retirement is usually different for each person, depending on the size of the Age
Pension entitlement. See sources below for assumptions.
4. Income tax isn’t taken into account in this table, although, in most cases, tax is irrelevant
because of the tax concessions applicable to retirees.
Sources: Data compiled from sources as follows:
1. Modest and comfortable annual costs/incomes (as at December 2009) — Source: ASFA
website ( These December 2009 figures (and the latest
figures available as at February 2010), are adjusted quarterly in line with the cost of living.
2. Lump sums needed when ‘No Age pension’, are calculated using ASIC’s ‘account-based
pension calculator’. Calculations assume 7 per cent a yearreturn (that is reinvested) on
account balance of account-based income stream. The annual income from the accountbased income stream is indexed by 3 per centa year, and runs out at the age of 87 (life
expectancy for a 65-year-old female). If you live beyond 87, then individual relies only on
the Age Pension. Calculations for ‘No Age Pension’ don’t take into account any tax payable
or Age Pension. Refer to Source 1 for more details.
3. The lump sum amounts under ‘Receives Age Pension’ column are calculated using
ASIC’s ‘account-based pension calculator’, and ‘FIDO retirement planner’. Calculations
assume 7 per cent a year return (that is reinvested) on account balance of account-based
income stream. The annual income from the account-based income stream is indexed by 3
per cent a year, and runs out atthe age of 87 (life expectancy for a 65-year-old female). If
you live beyond 87, then individual relies only on the Age Pension. The figures from ‘No
Age Pension’ column are used as upper lumpsum amount in ‘comfortable’ category.
4. Age Pension amounts asat September 2009.
Source: This article has been reproduced, with amendments and updated figures, from Trish
Power’s book, Superannuation: Planning YourRetirement For Dummies (Wiley) ($29.95)
Reproduced with permission.