Understanding Retirement Lifestyle Costs in Australia
The amount of money you need in your superannuation to retire at age 65 depends on your current living situation and the type of lifestyle you expect to live in retirement. In Australia, retirement lifestyles are typically divided into two categories: modest and comfortable.
A modest retirement, as defined by the Association of Superannuation Funds of Australia (ASFA), involves covering expenses slightly above the full Centrelink Age Pension. This includes basic health insurance, a cheaper model of car, and infrequent exercise. It also encompasses minimal utility expenses, limiting dining out, and possibly an annual domestic trip. It assumes that you own your house outright.
On the other hand, a comfortable retirement allows for a good standard of living. This includes top-level private health insurance, ownership of a reasonable car brand, regular leisure activities, some funds for home repairs, occasional meals out, and perhaps an annual domestic trip. Again, it assumes that you own your house outright.
Cost of Living in Retirement
Thanks to rising inflation and the cost of living, the benchmark for both a modest and comfortable retirement has increased earlier this year. This highlights the importance of long-term returns from markets like the S&P/ASX 200 Index (ASX: XJO) in building retirement savings.
To live a modest retirement lifestyle at age 65, individual Australians need approximately $35,503 per year, or a couple needs around $51,299 per year. To fund that, ASFA estimates you need a superannuation balance of about $110,000, or $120,000 for a couple.
In contrast, the cost of a comfortable retirement is significantly higher. Individuals can expect to spend around $54,840 a year, while couples may need closer to $77,375 a year. To support this, you’ll need a superannuation balance of around $630,000 for a single person, or $730,000 for a couple.
Tracking Your Superannuation Progress
So, how do you know if your superannuation is on track to reach the balance you need? According to ASFA, to be able to fund a comfortable retirement starting from age 67, your superannuation balance at age 40 should be $178,000.
If you want to retire just a few years earlier, say at age 65, you’ll need to stay ahead and aim for around $210,000 by around age 40 instead. By age 50, Aussies who want to reach the superannuation balance needed for a comfortable retirement by age 65 should have around $347,500.
This would need to increase to around $539,000 by age 60.
Key Takeaways
- A modest retirement requires an annual income of about $35,503 for individuals and $51,299 for couples.
- A comfortable retirement demands an annual income of approximately $54,840 for individuals and $77,375 for couples.
- The necessary superannuation balances for these lifestyles are $110,000 and $120,000 for modest, and $630,000 and $730,000 for comfortable.
- Tracking your progress is crucial, with targets set at $210,000 by age 40 for early retirement and increasing to $539,000 by age 60.
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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
