The million dollar retirement myth

Are you afraid you’ll never be able to retire? Despite the news headlines, a comfortable retirement might not need a balance of $1 million. You could retire with less.

Money can be one of the biggest causes of stress for people. Do I have enough? What will I do with it? For those retiring, the questions get bigger. Will I need to work until I die? What if I live to 100? While we may not have all the answers, identifying what kind of retirement lifestyle you’d like to have might give you a bit of an idea.   

Your savings aren't your only option

If you’re nearing retirement now, you haven’t had the benefit of an entire career of Superannuation Guarantee payments – so your superannuation balance might not be high either. Even if your retirement is still years away, you might still be worried about having a low balance. While the point of superannuation is to support your retirement, it isn’t your only option.

Some might already have plans to fund their retirement using income from sources like renting out an investment property. If this isn’t for you, don’t forget you may be eligible for the Age Pension. While the Age Pension only covers a very basic lifestyle for someone who already owns their home[1], even small amounts from your superannuation can improve your life.

 A modest lifestyle

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard explores what you might need to fund your retirement. A modest lifestyle suits a home owner using the Age Pension for part of their retirement income, supplemented by superannuation. This can be achieved for a couple with a budget of $39,775 per year, and a single person with a budget of $27,648 per year in retirement[2]. Compared to just using the Age Pension, this might mean having:

  • Private health insurance (compared to none)
  • The ability to take one or two short breaks in Australia near where you live (compared to shorter breaks or day trips in your own city on the Age Pension alone)
  • An older less reliable car (compared to no car).

Getting more comfortable

A lifestyle that includes an annual holiday in Australia, eating out regularly and a range of paid leisure activities may not need $1 million in superannuation either.

According to ASFA, a comfortable lifestyle for a home owner – which also assumes drawing down all your capital and receiving a part Age Pension – would mean $640,000 at retirement for a couple or $545,000 at retirement for a single person[3].

So when might I need $1 million to retire?

What you need in retirement depends on the lifestyle you want to have. Adding a few more holidays to the annual plan, including international trips, a few renovations to the house, and expensive restaurant dining compared to the ASFA expectations for a comfortable lifestyle, might mean the balance you need at retirement needs to be higher.

At the end of the day, every little bit extra, will give you more options when it comes to retirement.

More savings to give you more options

Stepping up your savings helps even those looking at a modest retirement. In fact, according to the Australian Institute of Superannuation Trustees, if you had a balance of $55,000 and boosted it through extra contributions to $75,000 at retirement, you would have an increase of 10% in your annual retirement income[4].

That extra $20,000 in contributions might sound hard to do, but if you put in an extra $20 a week into your superannuation on top of your Superannuation Guarantee payments, you would have contributed that amount in just under 20 years – that’s a couple of dollars each day[5]. Just don’t forget to check that you don’t go over the contribution caps for superannuation.

Next: Retirement lifestyle calculator

[1] https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/age-pension
[2] https://www.superannuation.asn.au/resources/retirement-standard
[3] https://www.superannuation.asn.au/ArticleDocuments/269/ASFA-RetirementStandard-Summary-2018.pdf.aspx?Embed=Y,
[4] http://www.aist.asn.au/policy-research-archive/research-papers/2015-research/super-reality-check-busting-the-$1-million-retirement-myth.aspx
[5] Calculation is based on 52 weeks in a year x $20 per week x 20 years = $20,800. This does not factor fluctuations in investment value once funds are invested in superannuation. This also does not take into account fees, insurance premiums, adviser fees on accounts or other fees and charges which may affect the final balance.

A comfortable lifestyle means different things to different people. Use our calculator to work out what lifestyle you want in retirement. 

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The article was prepared by BT.). BT is a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 01 April 2019. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.           
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice.  The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.