Figuring out how much retirement income you need to retire depends on the lifestyle you want, the savings you have, and the government support you can expect.
Working out a number means understanding how super changes when you retire, planning how you want your retirement to look, and knowing how to maximise your retirement income.
What does it cost to retire
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, 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.
You could choose to use a rule of thumb such as needing 70% of your working life income once you retire.
You could also use the Association of Superannuation Funds of Australia (ASFA) Retirement Standard and Super Consumers Australia's Retirement Savings Targets. These estimates will help you get an idea of costs and how much money you might need to support your desired retirement lifestyle.
- 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.
- The Super Consumers Australia's Retirement Savings Targets is a 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.
Plan for your retirement income using the planner.
Retiring with debt
Many people retire still owing money on their mortgage or other assets like their car.
If you are 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 retires with money still owing on his home loan
Bill has a home worth $1 million and still has $200,000 owing on his home loan. He is 67 years of age, lives alone and has a superannuation balance $100,000 over the Age Pension limit.
Currently he is not eligible for the age pension because his assessable assets – his super – is 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.
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.
Consider your goals and the lifestyle you want
A first step in planning costs in retirement is 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.
Work out your 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.
To get a clear picture of how much you might need in retirement.
Get your super on track while you're still working
Taking steps to build your super while you’re still working can help you have a healthier balance for . From making extra contributions, to reviewing how your super is invested and what fees you are paying, even small changes today can have a big impact in the future.
Find out ways to boost your super balance before you retire.
Some over-the-phone financial advice from your super fund is free. For more detailed retirement advice, such as transition to retirement or starting a pension account, fees often apply but can be paid from the funds in your super account. Talk to your super fund to find out more.
Rosie pays off her home before retirement
Rosie is a nurse, working reduced shifts and earns $63,000 a year after tax. Rosie still has a home loan, paying $15,000 a year, which she expects to pay off before she retires.
Using Moneysmart’s budget planner Rosie calculates that her living expenses will fall by about $4,000 a year when she retires. She will no longer have to catch public transport to work, and her kids will have moved out of home by then, reducing her food and utility expenses.
To maintain her current lifestyle, Rosie works out she will need about $44,000 a year in retirement.
Take-home pay after tax $63,000
Less home loan payments $15,000
Less lower expenses $4,000
Income needed in retirement $44,000
Rosie checks the rate of Age Pension and finds out that the $44,000 she wants to spend in retirement is more than the income from the single Age Pension. She needs enough super or other savings to provide for that gap. She also keeps in the back of her mind that she could release some equity from her home if her savings run out.
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.