Doing the sums: What’s needed for an affordable retirement?

Most of us are open to doing the maths and setting goals if we believe those goals are achievable. Resistance can set in, however, if we think that the targets are unrealistic. It could be that this has become the case with the commonly accepted quarterly ‘Retirement Standards’.

These Retirement Standards (published by the Association of Super Funds Australia or ASFA) were updated late last month, to reflect price changes through to 31 December 2023.

The Retirement Standard suggests two levels of retirement lifestyle; modest and comfortable. 

The table below contains the suggested amounts required per week and per annum for those aged 65-84, for each of these retirement lifestyles.

Advocacy group, Super Consumers Australia (SCA) also shares targets for retiree spending. These targets have three levels, low, medium and high which are listed in the table. We’ve also included the full Age Pension rates (including supplements) and median super rates at Age Pension qualification age and when many Australians retire (ages 65-69).

The reason for including these seemingly conflicting amounts is to set the scene for a discussion about how YOU can work out what is a reasonable spending pattern in retirement and whether your current savings will allow you to maintain this cashflow level.

Comparative spending targets in retirement:

ASFA RETIREMENT STANDARD (March 2024)
	Modest Single	Comfortable single	Modest couple	Comfortable couple
Per week	$626	$982	$900	$1382
Per annum	$32,666	$51,278	$46,994	$72,148
Suggested savings by age 67 to achieve this spending level	$100,000	$595,000	$100,000	$690,000

AGE PENSION – FULL ENTITLEMENTS INCLUDING SUPPLEMENTS (20 March 20, 2024)
Single	Couple
$29,024	$43,753

SUPER CONSUMERS AUSTRALIA SPENDING LEVELS ( August 2023)
	Low single	Medium single	High single	Low Couple	Medium couple	High couple
Per week	$596	$789	$1058	$846	$1154	$1539
Per annum	$31,000	$41,000	$55,000	$44,000	$60,000	$80,000
Suggested savings by age 65 to achieve this spending level	$76,000	$279,000	$795,000	$95,000	$371,000	$1,055,000

MEDIAN SUPER SAVINGS AGE 65-69 (ASFA, 2021) *most recent
Female	$201,233
Male	$213,986

It will be clear that we are not comparing ‘apples with apples’ with the ASFA and SCA targets. For a start, ASFA considers two levels of retirement lifestyle and SCA suggests three. One similarity, however, is that both sets of target spending and saving are based upon retirees fully owning their own home. No mortgage whatsoever. Yet we know the most recent research on mortgages at retirement age shows a sharp spike in this occurrence, to the extent that more than 50% of those aged 55-60 still have a mortgage. Both sets of targets for modest or low are at least $2000 or thereabouts higher than the full Age Pension for singles.

This begs the question whether these targets are useful for retirees, or just the shrinking number who are homeowners, with no debt whatsoever. The above spending guides have no allowance whatsoever for any debt repayment.

Yet debt is a pressing issue for many retirees and forms one of the big questions that many who are on the brink of retirement raise – should I use my super to reduce or pay off my mortgage? This is very practical consideration for a growing number of retirees. (If this concerns you, you may wish to consider a consultation with a Retirement Essentials adviser who can directly address the pros and cons of mortgage repayments, within the rules of the Age Pension and super).

ASFA notes (and SCA may also assume this) that the ‘typical’ retiree spending is based upon someone who is relatively healthy. Again, this is a big ‘if’ and might further reduce the useability of these targets. 

Another assumption by ASFA is in regard to those aged 85 and older (see tables in ASFA link above). And this is that they neither own nor drive a car nor will ever travel overseas. I don’t know about the 85year-olds in your life, but many I know do not fit this assumption. There is also an assumption for those aged 65-69 living a ‘modest’ lifestyle, that they, too, will never travel abroad. Yet anecdotally speaking, many people living on a full or part-Age Pension still aspire to do so. And will go without and save up in order to live these dreams.

The ASFA comfortable targets have been called ‘aspirational’ by many commentators. Part of the problem is that the comfortable amounts are higher than the current median income ($67,600 per annum as of August 2023), before income tax and the Medicare Levy are deducted.  

So where does this leave the regular retiree who would like to plan spending for the years to come, but does not quite fit the profile of a debt-free homeowner, by 85 no longer travelling, nor driving? 

As noted earlier, using inappropriate targets can feel somewhat deflating and make it hard to anticipate what your own particular spending needs might be.

The good news is that there are other ways to work out your needs and how your own savings can contribute to cover them. The Organisation of Economic Development (OECD) uses a measure of 70% of your most recent pre-retirement earnings. Perhaps this will work for you? Or 80% or 65% depending upon the scope of your lifestyle aims and activities.

Separately, having accurate knowledge of your current spending, category by category, is very helpful. Reviewing your current household budget will allow you to anticipate changes in different categories as you spend more time at home, after full-time work.

You may or may not already receive the Age Pension. Working through your potential entitlement and the amount you will be paid is critical to understanding how your super might top up such an amount, and when you may need to access it.

The most important takeaway here is that financial targets and ideal spending rates can often be created for the ‘average’ retiree. But there is no such thing. Every retirement is different, every retiree will have different needs and that’s why understanding your own household budget and extrapolating from that base will often give you the most relevant answers. 

You may also find it helpful to model how the Age Pension and super drawdowns will work for you across the years, factoring in your life expectancy and any lump sum withdrawals you plan to make. The Retirement Essentials safe spending simulator does exactly this. When used with the support of an adviser, it’s amazing how much clearer the projections can be.

What’s your story?

Many of the Retirement Essentials members have managed the transition to secure retirement income quite seamlessly. If you have too, please feel free to share your thoughts on how others might work through their likely retirement income needs.