Many Australians dream of a comfortable retirement, but the question of whether $1 million is enough to achieve that dream can be a daunting one. The answer, as with most financial matters, is not a simple yes or no. It depends on a variety of factors, including your desired lifestyle in retirement, your age, your current superannuation balance, and your other sources of income.
This article will explore the factors that influence how much money you need to retire comfortably in Australia, and whether $1 million is a realistic target for most people. We will also discuss strategies for boosting your retirement savings and maximizing your chances of achieving your retirement goals.
How Much Do You Need to Retire Comfortably in Australia?
The Association of Superannuation Funds of Australia (ASFA) Retirement Standard provides a helpful guide to how much money you might need to fund your retirement. The Standard outlines two different retirement lifestyles: “modest” and “comfortable.”
Modest Lifestyle:
A modest lifestyle for a home owner using the Age Pension for part of their retirement income, supplemented by superannuation, can be achieved for a couple with a budget of $42,621 per year, and a single person with a budget of $29,632 per year in retirement. 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).
Comfortable Lifestyle:
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 require a lump sum of $640,000 at retirement for a couple (or an income of or $60,528 per year), or a lump sum of $545,000 at retirement (or income of $43,638 per year) for a single person.
So, Can You Retire on $1 Million in Australia?
The answer to this question depends on your desired lifestyle in retirement. If you are happy to live a modest lifestyle, then $1 million may be enough. However, if you want to enjoy a more comfortable retirement, with regular travel, dining out, and other leisure activities, then you will likely need more than $1 million.
It is important to remember that the ASFA Retirement Standard is just a guide. Your actual retirement needs may be higher or lower, depending on your individual circumstances.
How to Boost Your Retirement Savings
If you are concerned that you may not have enough money to retire comfortably, there are a few things you can do to boost your retirement savings:
- Make extra contributions to your superannuation: You can make extra contributions to your super from your before-tax salary, your after-tax income, or even an inheritance.
- Salary sacrifice: This is a way to contribute a portion of your pre-tax salary to your superannuation. This can significantly boost your retirement savings over time.
- Consolidate your super: If you have multiple superannuation accounts, you can consolidate them into one account to save on fees and make it easier to track your progress.
- Invest wisely: The way you invest your superannuation can have a big impact on your retirement savings. Consider seeking professional financial advice to ensure your investments are aligned with your retirement goals.
Whether or not you can retire on $1 million in Australia depends on your desired lifestyle in retirement. If you are happy to live a modest lifestyle, then $1 million may be enough. However, if you want to enjoy a more comfortable retirement, then you will likely need more than $1 million.
The good news is that there are a number of things you can do to boost your retirement savings and increase your chances of achieving your retirement goals. By starting early and making smart financial decisions, you can put yourself in a strong position to enjoy a comfortable and fulfilling retirement.
Frequently Asked Questions
Q: How much superannuation do I need to retire comfortably in Australia?
A: The amount of superannuation you need to retire comfortably in Australia depends on your desired lifestyle in retirement. The ASFA Retirement Standard provides a helpful guide, but your actual retirement needs may be higher or lower, depending on your individual circumstances.
Q: How can I boost my retirement savings?
A: There are a number of things you can do to boost your retirement savings, including making extra contributions to your superannuation, salary sacrificing, consolidating your super, and investing wisely.
Q: What is the Age Pension?
A: The Age Pension is a government payment that is available to people who meet the age and residency requirements. It can provide a safety net for people who do not have enough superannuation or other savings to fund their retirement.
Q: How can I get financial advice about my retirement?
A: You can get financial advice about your retirement from a qualified financial advisor. A financial advisor can help you assess your retirement needs, develop a retirement plan, and choose the right investments for your retirement goals.
Disclaimer
The information provided in this article is general in nature and should not be considered as financial advice. It is important to seek professional financial advice before making any financial decisions.
Your savings aren’t your only option
Your superannuation balance may not be as high as you’d like if you’re approaching retirement and haven’t benefited from Superannuation Guarantee payments for the entirety of your career. Even if it will be years before you retire, you may still be concerned about having a small balance. Superannuation is not your only option, even though its main purpose is to support your retirement.
Some people may already have plans in place to use income from sources like renting out investment properties to finance their retirement. Don’t forget that you might be qualified for the Age Pension1 if this isn’t for you. Even modest sums from your superannuation can enhance your quality of life, even though the Age Pension only pays for the most basic of lifestyles.
The Retirement Standard from the Association of Superannuation Funds of Australia (ASFA) examines potential retirement funding needs. A couple with a retirement income budget of $42,621 and a single individual with a retirement income budget of $29,632 can both lead modest lives as home owners who use the Age Pension as a supplement to their income in retirement. When utilizing the Age Pension alone, this could entail having:
- Private health insurance (compared to none)
- Having the option to take one or two quick trips to a nearby location in Australia (as opposed to taking shorter trips or day trips within your own city while receiving the Age Pension alone)
- An older less reliable car (compared to no car).
A lifestyle that involves frequent dining out, an annual trip to Australia, and a variety of paid leisure pursuits might not require $1 million in superannuation.
ASFA estimates that a homeowner would need a lump sum of $640,000 at retirement for a couple (or an income of $60,528 annually) or a lump sum of $545,000 at retirement (or an income of $43,638 annually) to live comfortably, which also assumes drawing down all capital and receiving a part Age Pension.
More savings to give you more options
Increasing your savings can significantly increase the amount you receive in retirement. Take the example of a 25-year-old woman with an annual income of $80,000 (before taxes and super), and a $30,000 super balance at the moment.
Using the governments Moneysmart calculator, if she just relies on her employer’s superannuation guarantee payments and doesn’t make any personal contributions, her final retirement balance at age 67 will be approximately $595,000. The income from her super, combined with her potential aged pension entitlements, provides her with an annual retirement income of $43,448 up until the age of 90.
Nevertheless, her final balance would be roughly $879,000 (nearly $284,000 more) if she made an annual personal tax-deductible contribution of $5000. This implies that she will receive $52,951 in retirement income from super and aged pension each year, or about $9,500 more annually.
Other assumptions can be checked using the Moneysmart retirement planner calculator3.