The amount of money you need in your superannuation in order to retire at age 65 depends on your current living situation and what type of lifestyle you expect to live in retirement.
Generally, in Australia, retirement lifestyles are split into two options: modest and comfortable.
A modest retirement, according to the Association of Superannuation Funds of Australia (ASFA), is defined as being able to cover expenses slightly above the full Centrelink Age Pension. This includes basic health insurance, a cheaper model of car, and infrequent exercise. It also includes minimal utility expenses, limiting dining out, and maybe an annual domestic trip. It assumes you own your house outright.
Then a comfortable retirement is one that allows you to maintain a good standard of living. This includes top-level private health insurance, ownership of a reasonable car brand, regular leisure activities, some funds for home repairs, occasional meals out, and perhaps an annual domestic trip. Again, it assumes you own your house outright.
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So, how much will these retirement lifestyles cost me?
Thanks to rising inflation and cost of living, the benchmark for both a modest and comfortable retirement increased earlier this year. It's a reminder that long-term returns from markets like the S&P/ASX 200 Index (ASX: XJO) play an important role in building retirement savings.
Now, in order to live a modest retirement lifestyle at age 65, individual Australians need $35,503 per year, or a couple needs $51,299 per year. To fund that, ASFA estimates you need a superannuation balance of around $110,000, or a couple would need $120,000.
The cost of a comfortable retirement is a lot higher. To obtain a comfortable retirement lifestyle at age 65, individuals can expect to spend around $54,840 a year, or for couples, this can be closer to $77,375 a year. To fund that, you'll need a superannuation balance of around $630,000 for a single person, or $730,000 for a couple.
Ok, but how do I know if my superannuation is on track to reach the balance I need?
According to ASFA, in order to be able to fund a comfortable retirement starting from age 67, your superannuation balance at age 40 should be $178,000.
But if you want to retire just a couple of years earlier (at age 65) then you'll need to stay ahead and aim for around $210,000 by around age 40 instead.
By age 50, Aussies who want to reach the superannuation balance needed for a comfortable retirement by age 65 should have around $347,500.
This would need to increase to around $539,000 by age 60.
