With improved life expectancy and advances in medical science, Australians can look forward to a much longer and more active retirement than past generations. A male retiring at age 65 is likely to spend around 23 years in retirement and a female 25 years[i].
Enjoying a long and happy retirement, however, may cost more than you think. According to the Association of Superannuation Funds of Australia (ASFA), the following lump sums are required to provide a comfortable level of retirement income for retirees aged 65 to 84.
| Annual budget for a comfortable retirement[ii] | Lump sum required at retirement at age 67[iii] | |
| Single | $52,085 p.a. | $690,000 |
| Couple | $73,337 p.a. | $595,000 |
Important take-aways:
- These budgets assume the retiree(s) own their own home, if you have rent or mortgage expenses these are excluded.
- The lump sum estimates include the receipt of Age Pension both immediately and into the future and assumes the retiree will draw down all their capital.
What is a comfortable retirement?
The comfortable retirement standard allows retirees to maintain a good standard of living in their post work years. It accounts for daily essentials, such as groceries, transport and home repairs, as well as private health insurance, a range of exercise and leisure activities and the occasional restaurant meal. Importantly it enables retirees to remain connected to family and friends virtually – through technology, and in person with an annual domestic trip and an international trip once every seven years.
How do I access an income in retirement?
As well as any Age Pension you may be entitled to, or non-super investments such as properties that you may choose to retain and receive income from (e.g. rent), the most common way to provide for your required level of retirement income is with one or more regular retirement income streams. These include:
- Account-based (allocated) pensions – these can only be purchased with your super savings
- Lifetime or term annuities – these can be purchased with either your super or non-super savings.
In some cases, the best way to provide for your retirement income could be to combine an account-based pension and an annuity.
Combining retirement income streams
The right mix of retirement income streams will depend on your individual needs and circumstances, which might include:
- Your fixed and variable income needs in retirement
- Whether you will need to access some of your retirement savings as a lump sum in the future
- How important qualifying for social security benefits such as the Age Pension is to you
- Your estate planning needs, including whether you want to leave an inheritance to your dependants in the future
- Your tolerance for risk when investing.
How does the Age Pension factor in?
The Age Pension can play a significant role in providing retirement income, even if there are significant combined assets. The maximum Age Pension rates and asset test thresholds are as follows:
| Maximum Age Pension as of 20 September 2024 | Asset Test thresholds as of 20 September 2024 | |
| Single | $29,754.40 per annum ($1,144.40 per fortnight) | $314,000 full Age Pension $695,500 part Age Pension |
| Couple | $44,855.20 combined per annum ($862.60 each per fortnight) | $470,000 full Age Pension $1,045,500 part Age Pension |
Important take-aways:
- These thresholds assume the retiree(s) own their own home, for non-homeowners the thresholds are significantly higher.
- Assets exempt from the assets test include your principal home, and any superannuation where the owner is under Age Pension age.
- The purchase price of some annuities will not be fully assessed under the assets test.
Strategies to Achieve Your Retirement Goals
1. Superannuation: Superannuation is a critical component of retirement savings in Australia. Regular contributions to your super fund, employer contributions, and the power of compound interest over time can significantly boost your retirement savings.
2. Investments: Diversifying your investments outside of superannuation, such as in shares, property, or managed funds, can provide additional income streams and growth potential. Ensure you seek professional advice to align your investments with your risk tolerance and retirement goals.
3. Budgeting and Saving: Creating a detailed budget that includes your current expenses and projected retirement expenses can help you identify areas to save and invest more effectively. Regularly review and adjust your budget to stay on track.
4. Government Support: Australia offers various forms of government support for retirees, including the Age Pension, Pensioner Concession Card, and Commonwealth Seniors Health Card. Understanding your eligibility and the benefits available can help supplement your retirement income.
5. Healthcare Costs: Healthcare can be a significant expense during retirement. Consider private health insurance and plan for potential healthcare needs to avoid unexpected costs.
Why financial advice is important
Talking to a financial adviser in Sydney before you retire will help put you on the road to financial security and access the following benefits:
- Getting help from a financial adviser can help you decipher complex super and tax legislations.
- They can help you assess the best income stream options and also structure your retirement portfolio to save tax.
- They are supported by a network of technical and qualified specialists in super and retirement.
- You can schedule regular reviews to ensure you stay on track before and after you retire so all you need to focus on is enjoying a new more relaxed lifestyle.
[i] Australian Life Tables 2015-17 with 25-year improvement factors as provided by the Australian Government Actuary.
[ii] ASFA Retirement Standard – June Quarter 2024
[iii] ASFA Retirement Standard – all figures in today’s dollars (using 2.75% as a deflator) and assumed investment return of 6.0% per annum.