How much is enough in retirement?

How much do you need to comfortably retire?

It’s a common concern and it all depends on how you plan to spend your retirement, as well as any big costs you might have now, or planned for down the track.

There are also other factors at play. Australians are now living longer than ever – well into their 80s – and a bit over half of us are retiring with debt.

On top of that, our superannuation and investment returns have been volatile in recent years and for many of us, our retirement nest egg may not last all the years of our retirement.

So, we’ve got less money to last more retirement years – some 20 years or more if we were to stop working at the age of 65.

There are some basic tried and tested formulas that can help you work out how you might be tracking.

According to the Government’s Moneysmart website, if you own your own home, then you’ll need two-thirds (67%) of your pre-retirement income to maintain the same standard of living in retirement.

There’s also the Association of Superannuation Funds of Australia (ASFA) industry retirement standard which estimates how much you will need depending on your lifestyle.

ASFA estimates that you will need a lump sum of $690,000 for a couple and $595,000 for a single person at retirement to support a comfortable lifestyle. This assumes a partial Age Pension and equates to $1,356.44 per week for a couple and $880.20 for a single person.

To fund a modest lifestyle, covering basics and mostly funded by the Age Pension, ASFA estimates that you need a lump sum at retirement of $100,000 for a couple or a single person.

If like so many retirees your home is your most valuable asset, you may choose to look at accessing some of that accumulated wealth (i.e., your home equity) to fund part of your retirement.

Many people do this by selling their homes and downsizing. Alternatively, you can borrow against the equity in your home via a reverse mortgage which allows you to access funds without the need to sell up and move.

Getting the right advice and taking all your assets and income streams into account is the key, according to Scott Phillips from specialist reverse mortgage brokers Your Home Equity.

“There’s a lot of misunderstanding about reverse mortgages and how they work. It can also be very difficult for people to work out how much they are going to need to access so they can fund all the years of their retirement.

“Many people aren’t aware that you can set up a reverse mortgage to receive regular instalments to you so you can increase your monthly income and top up your Age Pension. This also reduces the amount of interest that you’ll accrue.

“You can also use it like a line of credit. If you have savings sitting in the bank it can impact the amount of age pension you receive.

“If you were to replace those savings however with a cash reserve via a reverse mortgage – in other words a nominated amount of money you can draw down when and should you need it – you can potentially increase your pension entitlements and still have access to emergency funds or lump sum cash at any time – only accruing interest when (and if) you use any of the funds.

“Even if you don’t have any savings or super left when you reach retirement, if you own your home, you likely have some good options, and with the right guidance you can put a sensible and measured plan in place to fund all the years of your retirement.”