Money Management

How much money is enough for retirement?

If you’re nearing retirement, one of the biggest questions on your mind might be, “Do I have enough money to have a comfortable retirement?” The answer to this question will differ from person to person. For instance, a retiree simply wanting a weekly income to cover bills, groceries and outings with the grandkids, will require a different amount compared to another retiree looking to travel the world once retirement rolls around. Whatever kind of retirement you envision for the future, it’s important your retirement budget reflects this.

So how much should I consider saving?

Working out your retirement budget can be tricky on your own. Thankfully there are lots of handy resources out there, to provide a rough idea of how much you might need.

Based on our research, it seems that the common view is that a good place to start is by using the ‘two thirds rule’, which means you should plan to get two thirds of what you currently earn a year in retirement, in order to feel comfortable.

Say you currently earn $70,000 per annum: two thirds of that would be about $46,900 per annum in retirement. (To work out two thirds of your income, multiply it by 0.67.)

You can then work out how to generate this amount each year in retirement by considering things like the likely return you’ll get from investing your superannuation lump sum, income you might receive from an investment property or a business that you will continue to own once you’ve retired, and also the age pension.

Since working this out this can be quite complex (and that’s not even factoring in matters like taxes and fees yet!), a qualified financial planner can help with information and advice for you to consider.

What could my retirement savings be made up of?

While the main source of your retirement fund will likely be from superannuation and savings, your retirement funds could also include things like income from property. That’s why it’s worth including any additional ongoing income in the equation when working out how much income you’re likely to receive each year during retirement. You might just find that extra income from investments means you won’t have to save up as much in a lump sum as you initially thought.

Of course, other factors that will negatively hit your budget should be considered too, like whether you’ll still have a mortgage in retirement and any medical bills that could come up.

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Tips to boost your retirement nest egg:

After you’ve worked out how much you may need in retirement, you could find you still have some saving to go. Even if you’re nearing retirement in the next few years, the good news is there are still plenty of things you could do to add to your super/savings:

1. Consolidate your super

Over the years, you might have had several different employers, and may have opened multiple superannuation accounts. Consolidating your super into the one account is important as it means you won’t be paying multiple account keeping fees. If you’re unsure what super accounts you may have open in your name, you can find out by creating a myGov account and linking it to the ATO. Find out more here.

2. Make extra repayments into your super

If you want to add extra into your super and also reduce the amount of tax you pay at the same time, then salary sacrificing into your superannuation (before tax) could work for you. To see how to make a voluntary super contribution visit the ATO website. Another option, if your spouse is a low income earner, is to make contributions to their super. This could mean a tax offset of up to $540 per annum.

3. Open an offset account

Do you have a home loan under your name? You could speak to your provider about whether they offer the feature of an offset account. This feature can reduce the interest you pay on your loan by offsetting the balance in your account against the home loan principal.

4. Up your savings with your salary

As your income increases it can be tempting to start upping your spending but what you could think about instead is upping your savings. While it’s ok to splurge a little (after all, you deserved that pay rise), think of your older self and consider increasing the amount you’re putting towards your retirement funds. For instance, if you receive a bonus you could consider spending some on that new gadget you’ve been eyeing and the rest on making a lump sum payment into your superannuation.

Where to next?

If you need a little help when it comes to retirement planning, check out the below tools and calculators:

  • MoneySmart has a Retirement planner calculator that you can use, which takes into account your income and current superannuation balance to work out how much you might have in super when it comes time to retire.
  • You can also use its Super vs mortgage tool, which can help you decide whether you should put more towards paying down your home loan or make extra payments in your super.
  • If you’re wondering how much pension you might get, try out the Age Pension Calculator by Your Pension. However, this may only be suitable if you’re planning on retiring soon, as it uses data from 2017.

Preparing for retirement can be stressful and understanding how much money you will need is a key question. It is worthwhile to speak to an advice professional to get a good plan in place for you and your situation.

Insuranceline is not authorised to provide tax advice, it is important to obtain advice from a qualified tax professional.

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