As you get closer to retirement, you may be faced with a choice: whether you can afford a modest or comfortable retirement. But what is a comfortable retirement, and are you likely to be able to afford one?

According to a new report by Deloitte¹, Australians need to have a lump sum of at least $610,000 when they retire in order to have a comfortable retirement. If you’re already in your 50s or close to retiring, you’re likely dismayed by this news, but if you’re in your 30s or 40s, will you be able to get your retirement savings above the line?

Back to basics

According to the Association of Superannuation Funds of Australia (ASFA) a modest lifestyle in retirement is better than what you’ll get with the current Age Pension, but you’ll still only be able to afford basic activities².

ASFA lists some activities³ you may be able to afford on a modest income as follows:

• One or two short breaks near where you live
• Eating out infrequently, and cheaper food
• An older or less reliable car
• Cask wine
• Hair-cuts at a basic salon, or on pensioner special days
• Not much scope to run an air-conditioner
• No budget for home improvements

While if you have saved enough to afford a comfortable retirement, you’ll likely be able to afford:

• An annual holiday in Australia
• Eating out regularly with a good range and quality of food
• A reasonable car
• Bottled wine
• Regular hair-cuts at a good hairdresser
• A range of electronic equipment
• Replace kitchen and bathroom over 20 years

According to Deloitte, a modest income will deliver a weekly income of around $450, with 80% earmarked for essentials, including food, utilities, clothing, transport, health, and home maintenance; leaving little for leisure activities.
While if you’re to have a comfortable retirement, you’ll be drawing a weekly income of $813 per week, leaving over a quarter of these funds for leisure activities.

The current state

According to the ‘Adequacy and the Australian Superannuation System’ report by Deloitte, Australians currently have nowhere near the amount needed in retirement.

Average account balances for those aged 65 plus in 2013 were $151,000 for males and $133,000 for females, while those aged 60-65 had $114,000 (males) and $94,000 (females).

 Average account balances June 2013

 

	Males	Females
Age 60 – 65	$114,000	$94,000
Age 65 +	$151,000	$133,000

  

 

 

Source: APRA

Work longer, save more

The key message is that even though the current Superannuation Guarantee amounts is set to rise to 12% by 2025, unless you work longer or save more, you’re not likely to be able to afford a comfortable lifestyle when you retire.

So how much more do you need to save?

The research says that in order not to need to rely on a Government-financed Pension with its increasingly restrictive eligibility conditions:

“males should contribute an extra 5.5%, and females 7.5% of salary in addition to the 12% Superannuation guarantee charge, throughout their working life, to self-finance a comfortable retirement,”

According to the report, men will need a lump sum of $610,000 and women will need $680,000 to enjoy a comfortable retirement.

 

Amounts needed at age 65 (In 2014 dollars)

	Males	Females
Modest lifestyle	$340,000	$370,000
Comfortable lifestyle	$610,000	$680,000

  

 

 

^{Source: Deloitte Actuaries and Consultants}

 

	Males	Females
Modest lifestyle	$430,000	$430,000
Comfortable lifestyle	$510,000	$510,000

  

 

 

^{Source: ASFA Retirement Standard March 2014}

 

Preparing for retirement

So, is there anything else you can do, apart from working longer and saving more?

Speak to your Financial Adviser to assess your individual situation.

They’ll be able to help you sort out your Super whether you’re in your 50s and close to retirement age, or whether you’re in your 30s and 40s and need strategies to help with getting your retirement savings above the line.

¹Adequacy and the Australian Superannuation System – Deloitte
²ASFA Retirement Standard March 2014
³http://www.superguru.com.au
Source: Colonial First State Investments Limited