Planning your dream retirement can be an exciting time. The chance to travel, time or pursue new hobbies, the possibilities are endless, but what will it cost?
Working out how much you will need to live the dream, and what you can afford will come down to a variety of factors. These include whether you own your home, the value of your superannuation and other investments, the return you earn on those investments and your spending patterns.
There is also the big unknown of how long we you live for?
Today’s 65-year-olds can expect to live to an average age of 84.6 years for men and 87.3 for women, or roughly 20 and 22 years respectively in retirement. That’s a long time, and it’s only an average. Half will live longer than that, many into their 90s.
The challenge is to ensure your funds lasts the distance, however long that may be. You may retire at age 65 but your money needs to keep working to produce the returns you need to live out your days in the style to which you have become accustomed.
A good way to begin thinking about your retirement needs and working out a budget is to visit the ASFA Retirement Standard website (https://www.superannuation.asn.au/resources/retirement-standard), where you will find detailed budgets for different households and living standards The budgets are updated quarterly and assume people own their own home.
As at December 2020, the ASFA Retirement Standard calculated that singles aged around age 65 would need $28,179 a year to live a modest lifestyle while couples would need $40,739. A comfortable lifestyle would cost $44,224 for singles and $62,562 for couples. The comfortable budget allows for higher spending on things such as health, insurances, home improvements, clothing, eating out, entertainment and travel.
Of course, everyone’s income needs, and lifestyle will be different. Some people may need to spend more on their health, while a contented gardener and homebody may need less money than a keen global traveller with a season ticket to opera, theatre or football.
It’s also important to recognise that your spending patterns are likely to change in predictable ways over the course of your retirement, determined by your health and mobility.