Research by the Association of Superannuation Funds of Australia (ASFA) released in the beginning of August 2012 found that the cost of a comfortable retirement continues to rise, despite relatively low rates of inflation.
For a couple who own their own home, retirement costs at least:
- $31 760 a year for a 'modest' retirement lifestyle
- $55 213 a year for a 'comfortable' retirement lifestyle.
To fund this without relying on the Age Pension at all, you would need a lump sum on retirement* of:
- About $600 000 for a modest retirement (with 5% returns) or $500 000 (with 7% returns);
- About $1.03m for a comfortable retirement (with 5% returns) or $850 000 (with 7% returns).
How does comfortable differ from modest?
Both budgets assume the couple owns their home outright and are relatively healthy.
A modest retirement lifestyle is considered better than the Age Pension (paying around $29,614 pa for a couple in August 2012), but still only able to afford fairly basic activities.
A comfortable retirement lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as:
- household goods,
- private health insurance,
- a reasonable car,
- good clothes,
- a range of electronic equipment, and
- domestic and occasionally international holiday travel.
The differences relate mainly to differing amounts spent on food, health and leisure, with extra items included in the comfortable budget such as:
- being able to update the kitchen or bathroom at some stage,
- some wine,
- eating out from time to time,
- being able to entertain family or friends at home,
- purchasing magazines and CDs,
- an economy overseas holiday and
- being able to afford additional alcohol, purchase tobacco or make gifts.
For more detail, please see: http://www.superannuation.asn.au/resources/retirement-standard
* Notes and assumptions
- Living costs based on ASFA figures – see http://www.superannuation.asn.au/
- Lump sums based on the ASIC Money Smart retirement calculator, assuming retirement at age 65 and investment in an account-based pension, which is tax-free
- Annual income assumed to increase by 3% each year for inflation with all surplus income is reinvested.
- Money runs out at age 87 (life expectancy of a 65 year old female), after which the retiree is dependent on the age pension, paying $29 614 per couple at August 2012).