In a previous article we have analysed some of the different ways of setting retirement savings and spending targets. These main projections are published regularly by the Association of Super Funds Australia (ASFA), the Super Consumers Association (SCA) and YourLifeChoices website, in association with The Australia Institute.
Last month two of these organisations updated these targets for saving and spending, in response to inflation over the past year. We report on these adjusted targets below. But our main question today is how much such targets matter? In a nutshell, should you really care? Read on as you may be surprised by our conclusion.
In late August 2023 both the Association of Super Funds Australia (ASFA) and Super Consumers Australia (SCA) announced much higher targets. The following summaries are based upon different research and calculations. They cannot really be compared on an ‘apples with apples’ basis. Our previous article considered some of the differences in methodology between two of these offerings . Understanding how the projections are created will help you decide if one set of targets is more useful than another for your own income planning.
Here are the updated targets which were both published at the end of August 2023. Both sets of targets assume home ownership, with no mortgage:
Association of Super Funds Australia (ASFA) Retirement Living Standard
|Home owner, age 65-84|
|Single||Modest lifestyle $31,867 pa||Savings by age 67 $100,000|
|Couple||Modest Lifestyle $45,946 pa||Savings by age 67 $100,000|
|Single||Comfortable lifestyle $50,207 pa||Savings by age 67 $595,000|
|Couple||Comfortable lifestyle $70,806||Savings by age 67 $690,000|
For further detail, visit ASFA
Super Consumers Australia
Savings targets for retirees (aged 65-69)
|If you own your own home when you retire||And you’d like to spend this much in retirement||Then you need to have saved this much by 65*|
$1,192 per fortnight
$31,000 per year
$1,577 per fortnight
$41,000 per year
$2,115 per fortnight
$55,000 per year
$1,692 per fortnight
$44,000 per year
$2,308 per fortnight
$60,000 per year
$3,077 per fortnight
$80,000 per year
*On top of income from the Age Pension
For more information see Super Consumers Australia’s Retirement Savings Targets.
As we’ve noted, these calculations cannot be directly compared, but they do provide an idea of targets that are independently measured to ascertain different standards of living in retirement.
They do present problems, though.
As you can see in our enewsletter update this week, there has been an increase in the Age Pension, with the full Age Pension (including supplements) now paying $28,514.70 for singles and $42,988 for couples per annum.
Let’s look at these annual amounts side by side, to see how much heavy lifting the Age Pension can do in retirement income:
|Age Pension (full)||ASFA (modest)||SCA (low spending)|
It’s well worth noting how close the ‘modest’ and ‘low’ amounts are to the actual Age Pension payments.
The problem with targets
It could be argued that, rather than solving a problem, targets present one. There is strong anecdotal evidence that older Australians, over the years, have been very discouraged when the so-called ‘comfortable’ targets are published. Ordinary wage earners have then turned off the idea of retirement planning as they firmly believe that they don’t ‘have enough to worry about’ – that they need $1 million to have a decent retirement.
It reminds me of that awful Irish joke when Murphy is asked directions, and he scratches his head, screws up his face and pronounces, ‘Well if I were you, I wouldn’t be starting from here’.
And that’s the message many people hear when they realise their hard-earned super savings of $250,000 or so are less than half that needed for any kind of retirement ‘comfort’. So they retreat into their shells thinking there’s little point in doing anything.
This is the opposite of the truth.
The facts are that the less you have, the more you need to do to ensure you are maximising every cent and receiving every entitlement.
So what if you ignored these targets and simply started where you are today?
There are two compelling reasons to do this.
Firstly, you are dealing with reality, not someone else’s idea of your needs and circumstances. And secondly, the forecasts will be 100% accurate.
Here’s a quick example, using the situation of homeowners Sally (64) and Grant (68), to illustrate how they can project from their ‘known knowns’ using the Retirement Essentials Retirement Forecaster to work out their likelihood of a reasonable retirement income.
|This is their current situation:|
|Preferred retirement age||67, 68|
|Savings including super||$450,000|
|Retirement spending needs based on current outgoings||$50,000 p.a.|
|This is their forecast:|
|Likely lifespan||24 more years for Sally, 18 more years for Grant|
|Age at retirement||67, 68|
|Annual retirement income, through combination of Age Pension and super||$50,000 minimum income until at least 2038 when Sally will be 79 and Grant will be 83|
So no, Sally and Grant did NOT meet the suggested targets and have zero expectations that an inheritance will ever suddenly arrive from out of nowhere..
But they can see clearly that they can retire in a couple of years. And cover current, and inflation-adjusted household costs until a ripe old age. They can also see when the Age Pension will be likely to add to their income, and the important part it will play in this income as they age.
They are also aware, as homeowners, that they are in the fortunate position of being able to access equity in their home as they age, either through the governments’ Home Equity Access Scheme (HEAS), or a reverse mortgage provider.
So they can spend according to plan and live the kind of life they are currently enjoying. Or they can access these extra funds for a special adventure or project.
If you, too, are turned off by savings targets that seem out of reach, consider a consultation with an experienced adviser using the Retirement Forecaster to show you your different spending scenarios. Contact us as we’d love to help set your mind at rest.
Alternatively an appointment to discuss how to maximise your entitlements could deliver equal peace of mind.
What about you?
Do you find saving and spending targets helpful?
Or do they just make you worry that your money will run out?