How much will you need for retirement?
When you're planning for 30 years or more of your life, it's hard to imagine how much you will need to live on. A lot of Australians underestimate how much they need to enjoy even a modest retirement. A rule of thumb used by many financial planners is to estimate needing 65% of your pre-retirement income.
A report conducted by Westpac Bank and the Association of Super Funds of Australia (ASFA) in July 2009 determined that a couple looking to achieve a comfortable retirement needs to spend $50,771 a year, while those seeking a 'modest' retirement need to spend $27,547 a year. Read the media release from ASFA.
Will $300 a week be enough?
Only 12% of retired Australians receive a gross weekly income of $500 or more. Approximately 70% of Australians aged 65 or over currently live on a gross weekly income of less than $300.
Just how long is a piece of string?
| Age you retire | To get $25,000 each year you'll need $ | To get $35,000 each year you'll need $ | To get $45,000 each year you'll need $ | |
| Women | 55 | 584,600 | 818,440 | 1,052,280 |
| 60 | 510,075 | 714,105 | 918,135 | |
| 65 | 434,400 | 608,160 | 781,920 | |
| Men | 55 | 510,525 | 714,735 | 918,945 |
| 60 | 436,025 | 610,435 | 787,845 | |
| 65 | 363,950 | 509,530 | 655,110 |
Assumptions: The gross rate of investment return is 6.0% pa. Assumed management fee is 1.5%, giving an after-tax return of 4.5%. Inflation is 3.0% pa and all pension payments are indexed accordingly. There is no investment tax on the assets used to support the retirement income stream. Amounts are in today's dollars, i.e. have been adjusted for inflation. Based on life expectancies using Australian Life Tables 1995/97, the returns are illustrative only and are not indicative of any BT fund. A small change in any one of the assumptions can lead to a large change in the results. As you withdraw your capital over time, the dollar value of your income will reduce. Future performance of any fund is not guaranteed.
Income sources
Once your employment income stops you'll be reliant on your super, any other investments and savings, and, if eligible, the Government Age Pension.
The Age Pension
Most Australians will need more than the Government Age Pension to live comfortably in retirement. The Age Pension provides a modest income only it is not designed to replace a full wage. As the Age Pension is means-tested, the more assets and income you have, the less pension you are entitled to receive.
The Retirement Income System
The Australian Government wants to encourage Australians to take more responsibility for funding their retirement. As a result, the Australian retirement income system is structured upon 3 major components:
- the age pension which involves a minimum level of Government support;
- compulsory super guarantee which the majority of Australian workers now receive; and
- the ability to make additional savings through personal, voluntary super contributions (various tax benefits such as the Government Co-contribution scheme actively encourage this).
Don't forget inflation
The figures shown here take into account an expected increase in the cost of living due to inflation, measured using the Consumer Price Index (CPI). You need to ensure the value of your investments aren't eroded over time by inflation.
Learn more about retirement
- Planning for retirement
- How much will you need for retirement?
- When can I retire?
- What is a transition to retirement strategy?
- What are my retirement options?
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