‘How much do I need to retire?’ is an important question to ask. Figuring out how much retirement income you need depends on the lifestyle you want, the costs you'll have, and the government support you can expect.
Working out how much money you'll need means planning how you want your retirement to look, and knowing how to maximise your retirement income. Here are four steps to get you started.
1. Learn about retirement costs
How much retirement costs depends on what you want out of retirement, and your individual needs and circumstances. The lifestyle you want may look different to another person's, so your living costs will be different. For example, you might prioritise travel, whilst your friends want to stay close to the grandchildren at home.
However, there are ways to get an overview of what a typical retirement might cost, as a starting point.
- You could choose to use a rule of thumb such as needing 70% of your working life income once you retire.
- You could use the Association of Superannuation Funds of Australia (ASFA) Retirement Standard. The ASFA Retirement Standard estimates how much money it costs for different lifestyles in retirement. It helps you understand the difference between estimated costs for a modest and comfortable lifestyle, according to the ASFA definitions.
- You could also use the Super Consumers Australia's Retirement Savings Targets, which is another tool to help you estimate what level of savings you need to support your planned spending in retirement. It calculates savings targets based on your age and spending plans.
Both of these estimates are based on owning your home in retirement. If you are renting, your costs will likely be higher. It’s important to only use these estimates as a guide and plan your retirement costs based on your individual needs.
2. Consider if you'll retire with debt
Many people retire still owing money on their mortgage or other assets like their car.
If you're approaching retirement, you can take steps to get debt under control.
If you still have debts when you reach retirement age, you could choose to pay off the debts using:
- your superannuation
- other savings, such as proceeds from downsizing your home
Before going ahead with any of these options, check the tax impact and whether it will affect your government benefits.
Consider getting financial advice to help you understand your options.
Bill pays off his home loan
Bill has a home worth $875,000 and still has $200,000 owing on his home loan. He is 67 years of age, lives alone and has a superannuation balance and other savings that put him over the Age Pension limit.
Currently he is not eligible for the Age Pension because his assessable assets are above the cut-off point for a part pension.
If Bill takes $200,000 from his super and pays off his home loan, his assessable assets drop to $600,000, putting him below the cut-off point. He will also save on interest and principal repayments.
While Bill gets less super, he becomes eligible for the Age Pension and all the associated subsidies. He also likes that he can stay in his current home.
3. Plan your retirement goals and lifestyle
How much retirement costs depends on what you want out of retirement, and your individual needs and circumstances. So, an important step in planning costs in considering your personal circumstances and the kind of lifestyle you want to live.
Think about the things that matter to you.
- A modest lifestyle might include prioritising smaller local experiences instead of big holidays, staying connected with your community, and choosing quality over quantity. Managing your money thoughtfully can mean less financial pressure and provide peace of mind.
- A more comfortable lifestyle may offer more chances to travel, dine out and make upgrades to your home.
Both approaches can provide a fulfilling retirement. It’s about matching your plans to your savings.
To help you review and consider your goals and lifestyle, see make a retirement plan.
Plan for your retirement income using the Moneysmart retirement planner.
Joe and Helen retire
Helen and Joe had both retired earlier in the year and were struggling to work out what to do with their superannuation accounts.
They are homeowners and have been able to retire debt free, and they both receive a part Age Pension.
“We don’t have a lot of savings,” explained Joe. “We’ve both always worked, and we’ve raised three kids, and helped them out a bit over the years. We have some superannuation each – we didn’t put extra in, but we have what our employers paid in. We wanted to use some of that money now that we’re retired, but we didn’t know the best way to do that.”
4. Work out your retirement living costs
Once you know how you intend to live, you can work out your living costs and create a budget.
Understanding your current spending habits will help you plan your future needs. Think about the main money categories:
- Income
- Home and utilities
- Insurances
- Groceries
- Personal and medical
- Entertainment & eating out
- Transport & auto
- Children and grandchildren
Consider your future costs and how it may change when you retire. For example, you may not be paying for professional membership fees or transport to work.
Renting in retirement
If you are renting your home in retirement, you’ll need to factor this into your budget. Allow for increases in rent over time and check if you’re eligible for government assistance.
Rent is a big ongoing expense and can cause financial stress. If you’re struggling to make ends meet, there are services that can help you.
Find more resources for renting in retirement.
Steve is renting and has debt in retirement
Steve rents his unit, has a $10,000 debt on his car and is about to retire, aged 67 years. He has $120,000 in super.
On retirement, Steve repays his loan leaving himself with $110,000 in super.
Before Steve retires, he checks with Services Australia and discovers he is eligible for Government rent assistance and will receive the full Age Pension.
To get a clear picture of how much you might need in retirement.
Key actions you can take
- Find out more about retirement income sources and watch a free online retirement webinar from Services Australia.
- Track your spending to work out how much you might need to budget for in retirement
- Consider your goals for when you retire and if you can grow your super balance while you’re still working.
- Use the budget planner to calculate how much you will need in retirement, including costs if you have a mortgage, rent or debts.