Here’s why most of us don’t
Being told unrealistic targets is hardly likely to motivate anyone at any age. Yet this is often the case with retirement savings targets. Today we take a more realistic approach by using the factual ‘middle’ savings amounts for those about to retire, to demonstrate how quite modest savings can last the distance.
Why is this important?
The most commonly quoted targets for retirement spending and saving are those published quarterly by the Association of Super Funds Australia (ASFA). Much attention is paid to the so-called ‘comfortable’ amounts. The most recent targets (2023) are:
Couple:
Annual spend (early retirement years) $72,663 (reduces to $67,050 after 85)
Savings required (at retirement) $690,000
Singles:
Annual spend (early retirement years) $51,630 (reduces to $48,075 after 85)
Savings required (at retirement) $595,000
But very few retirees achieve these levels of savings by the time they enter retirement. There has also been a steep increase in the number of Australians retiring with debt, many with sizable mortgages. That’s why the median savings levels are much more useful indicators of how people will manage their savings across their full retirement journeys.
What’s so magical about ‘median’ amounts?
Unlike average amounts, median numbers reveal how most people are doing. For instance, somewhere in Australia is a person who has $544 million in their self-managed super fund. There are another 27 people with more than $100 million. So these ‘mega-high’ balances totally skew the ‘average’ amount when the sums are done. Using the median super savings allows us to isolate the amount that the largest number of people have at the pointy end of retirement – when they leave full time work, generally between 65-69. By using the median, we know that about half of the population will have more than this amount and half less, so it sits right in the middle and provides a useful benchmark when calculating long-term retirement income.
According to Australian Tax Office (ATO) data, the 2023 median amounts were as follows:
Singles (aged 65-69)
Male $213,986, Female $201,233
Couple (aged 65-69, based upon total of above amounts) $415,219
Crunching the numbers
We used the Retirement Essentials Retirement Forecaster tool to check how well the median amounts would fund a full retirement journey for a couple and a single.
The following assumptions were made:
- All savings are in super (i.e. no other financial assets)
- House contents are valued at $10,000
- Car value is $30,000
The scenario for both a couple (Jim and Jan) and a single (Dianne), were based upon a retirement age of 67. Here’s how it works out.
Couple – Jim and Jan
If Jim and Jan want to maintain ASFA standards of ‘comfortable’ income level (spending $72,663 per annum earlier in retirement, $67,050 from age 85 and over) there is only a 19% probability there will be any of their wealth remaining at 92. They are likely to have run out of their savings before this and be reliant on the Age Pension alone.
However, if they are spending $65,000 per annum earlier in retirement, then reducing down to $58,000 per annum from age 85 onwards, there is an 85% probability there is still some wealth remaining to continue to maintain their standard of living at age 92.
In other words there is only a 15% probability that approaching age 92 they will have run out of money and may need to make changes to their situation. Such changes could be to spend less, downsize, access home equity, etc. The $65,000 per year is achieved by a combination of (current) Age Pension of 43,752, with a $21,248 per annum top up from their super.
Single – Dianne
Dianne’s savings are also unlikely to stretch to the suggested ASFA spending amounts.
Assuming she is not working, she can spend $40,000 per annum earlier in retirement, reducing down to $35,000 per annum from age 85 onwards, there is approximately an 85% probability there is still some wealth remaining to continue to maintain her standard of living beyond age 92. The $40,000 income is achieved with a full Age Pension of $29,023 and a top up of $10,997 per annum from her super. The following chart from the Retirement Forecaster shows how this works.
What if Dianne works?
Let’s assume she decides to work part-time and earn $10,000 per annum until age 72.
This employment income of $10,000 per annum for another five years allows an increase of $2,000 – $3,000 spending per annum throughout retirement.
Rather than spending $40,000 per annum early in retirement and then reducing to $35,000 from age 85 she can now spend $42,000 per annum earlier in retirement, then reducing down to $38,000 per annum from age 85 onwards. She will be able to spend an extra $2,000 – $3,000 per annum throughout her retirement and still have approximately an 85% probability that there will still be some wealth remaining to continue to maintain her standard of living beyond age 92. The chart below shows how these three different income streams combine over time.
(NOTE: These spending levels without part time work result in only a 42% probability of maintaining spending to age 92.)
Other assumptions
The above examples are simple, in order to illustrate the way that super and extra work can top up an Age Pension over the years. To keep the calculations easy to follow, we have also assumed the following:
- no other lump sum expenses,
- Age Pension entitlement calculations remain consistent throughout the next 25 years,
- factors in changes in spending over time with inflation, and
- assumes that the asset allocation of the super is invested in line with a Market Risk Level 5.
If you would like to see these scenarios in action for you, a Retirement Forecasting consultation will allow you to play with different levers to check the longevity of your savings. Or perhaps you simply wish to know more about your Age Pension and super options, in which case an Understanding Super consultation may suit you better.
How do you project your own retirement income needs?
Do you find savings targets, such as the ASFA Retirement Standard useful? Or are there other benchmarks that serve you better?
A very useful article. Thank you.
The most important assumption is totally ignored in this article and that is wheter or not you have your own home or rent. A large proportion of retirees must rent for the rest of their lives and for many half of theei living costs are rent. Why are all ‘live comfortable” calculations based upon you owning a home?
Hi Matt, thanks for your feedback, you are correct that the ASFA standards mentioned in this article are calculated based on homeowners.
I always see how the amount of Superannuation is highlighted. Surely with today’s Home Equity scheme it is possible to live a life where money is not the be all. If you own a property worth 1,6 million you can enjoy the fruits of life and leave whatever remains to your children and still get a Full Pension and all the perks.
At the start of retirement, both examples will not be eligible for a full pension as their assets are over the limit. They will only receive a part pension.
Hi Nick, thanks for keeping us on our toes! I went back and double checked and I think there may have been a misunderstanding. The two examples we used are done so using the median asset values which are male $213,986, female $201,233 and therefore a couple would be $415,219. The lowest asset thresholds for singles is $314,000 and for a couple $470,000 so even if we were to look at a 2 male couple, the total would be 2 x 213,986 = $427,972 in super plus $40,000 for the car and contents making a total of $467,972. So whether single/couple or homeowner/not, they would still be under the minimum threshold and receive the full Age Pension in the two scenarios.
You also did not take into account the assets test on the value of the house if they own it. This would take them over the limit for receiving any aged pension at all.
Hi Alexander, thanks for keeping us honest. The home you live in is exempt from assessment with Centrelink so this was left out quite intentionally.
at last someone saying something sensible, I have been saying this for years and have been howled down by financial advisors and other who have been brain washed.
I still think that you are aiming a little higher for comfortable living, but I can live with it.
may be you will read my comment [ but i will not hold my breath!]
i am not an expert but i have retired at age 73 now i am 74.
my wife and my self self live now on $1525 a week [own our house] and that is only comfortable living [lower end] .no money left for any holidays.
We receive $1525 a week from super income stream from balance of $820,000.[in one year the balance is the same as at the start.
$65,000 a year is NOT COMFORTABLE LIVING in any language .
we do have two cars.
Hi Charles, I can’t speak on behalf of our readers but I can tell you that we read each comment before posting it. You don’t appear to have any questions that require a response but I can assure you and everyone else that we do read the comments.
Hi, can I ask a question. You say you live on $1525 a week. No mortgage or rental payments.
But then say $65000 a year is not “comfortable “.
My calculations have $1525 x 52.16 weeks per annum at $79,544 per annum. or $6,628 a month.
Or have I missed something here?
Thankyou
I gave up reading this article when your assumption was that a couple only had 10k in assets. Really!
Are they living in an unfurnished apartment with no clothes or jewellery?
Run the numbers on 100k and I would be more interested.
Hi John, thank you for raising your concern. The reason we use the value of $10,000 is because Centrelink assess the value of your contents based on private/garage sale value as opposed to insured or replacement value. If you truly believe someone walking through your house would give you $100K for all of your contents then you should definitely declare that but our experience has been that most people’s contents would not fetch top dollar if put up for sale.
Thanks for your article. It is about how we choose to live and spend. As a single person of 63, I budget on $50K per year (currently), which I revise every year. I also have a contingency fund, in case something needs to be unexpectedly replaced such as an appliance. I also have a pet (and I track the spending on him every month). I have a rolling annual budget spreadsheet which is set for at least 5 years in advance. I also track my spending and savings accounts, including super every single day. I track my spending every day (even if it is a cup of coffee it goes on the spreadsheet). It is amazing how much you realise you spend frivolously. And I live very comfortably. If I find a category is blowing out, then I cut back in other areas immediately. I gave up alcohol because I realised that I could easily spend $2000 per year (and that was only light drinking) which essentially only adds calories and inches to your waistline and you don’t really need to enjoy life. I only have one glass of wine when I go out for meals. And that is all good. My brother was spending $5000 per year on alcohol and didn’t realise this until we added up his bills. He too has stopped and said he has never felt so well in years (he is 65). I will end up with a part pension at 67 and super/savings of around $450-500K. I do own my own home which is of course, a huge help. And it too is part of my portfolio, because when I need to, I will reverse mortgage the hell out of it. My understanding is that if you take it as a regular monthly income stream, the payment doesn’t count as an asset because it is not taxable income and it can top up your pension and super interest payments. Also, even though interest may be accruing, the value of my home will be increasing at the same time, which should balance this out when it is time to sell up. If you take a lump sum and leave it sitting in your savings account then it does count as an asset and can affect your pension. It’s all about doing your research and frankly when you are retired you have plenty of time and free resources to do the work. Now, I know that some people want to leave money to the children (I don’t have any) which affects their spending habits and plans. I do intend to leave a large chunk to medical research and animal welfare. Also, if people want to help their kids, do it while you’re alive when it can more meaning and impact to them. Too many people die while leaving so much money behind when they could have had an easier life, expecting the government to do the heavy lifting. BY the way, my understanding is that even if you have $1 per week pension, you automatically get the Pensioner Concessioner Card. And another thing that a lot of my friends forget is to apply for the Seniors Card (NSW). If you are not working and have it then you can get the GOLD OPAL card which limits transport costs to $2.50 per day. I use it all the time and it has saved me a lot of money. Finally, there is this huge push by the Government and Superannuation Funds that we need $1million plus in super. That’s one of the reason they keep on increasing the amount that we can contribute (such as the $300K if you sell your house). Why? They want us all to self fund because it is going to save the government a ton of money. Now it is all well and fine to fund your own retirement, but we shouldn’t be terrified about it. It’s about taking a balance approach to preparing for our later years with help from the government along with disciplined planning and savings on our behalf.
Thanks very much for you thoughts Graham. And you are correct. Even just $1 of Age Pension will also get you the Pensioner Concession Card and all its associated benefits.
How much can you buy for $35K in even ten years time?
Thanks for this insight.
I believe I would like to have a personalised assessment.
Hi Angela, thanks for reaching out, please CLICK HERE to make a booking.
I will be retiring later this year, $420000 in super, around 70000 in shares, will I receive a full or part pension, and if a part pension, will I receive a pension card.
Hi Tom there are other factors that impact your eligibility for full/part pension such as relationship status and home ownership so I will err on the side of caution and say only a part pension but you will receive the Pensioner Concession Card regardless of how much pension you are eligible for.
Thanks again for this information. I think you are doing a great job of telling us the many things we need to know about retirement and the aged pension etc.
This particular article sounds about right to me. Maybe a few figures seem a little low, but everyone’s circumstances are different and therefore the estimates you give are fair.
I don’t know why people are posting negative comments. It’s quite annoying actually.
Keep up the great articles.
Very good couples scenario BUT, i didn’t see anywhere it took in Super/Pension Fund growth ,
Here is a scenario, You have a $500k in pension/super fund you need to withdraw min 5% as regulated by the Government, your balance of $475k earns say 8% giving you $38k interest for the year ($513K), allow 3% inflation you would still have a 5% growth, giving a Balance of $497K approx , Thus extending your supers life, Am i wrong
Hi Garry, you are correct that this is not specifically stated anywhere however it is taken into account with our calculator and the probabilities we stated in the article.
Good article, I get annoyed when a lot of these so called financial experts never factor in the age pension, as if it doesn’t exist and your super savings will have to cover you for life. Eventually for most people their assets will fall below the threshold at some stage of retirement and a part or full pension will kick in. Your super will then become a life style top up to your pension.