How much do I need to retire in Australia?

Retirement is a major life milestone that should be a cause for celebration. But careful planning is needed to ensure a financially comfortable retirement. Taking steps today to help support yourself tomorrow can pay off when it comes time to exit the workforce. 

To ensure a comfortable living standard in retirement, you need to calculate how much you’ll need to retire and then plan how to get there. Our seven steps to retirement planning in Australia will take you through everything you need to do.

7 steps to retirement planning in Australia 

Leaving the workforce is an important life stage that you should be able to enjoy to the fullest. But a comfortable retirement does not just happen — it requires careful planning ahead of time. You will (hopefully) be retired for many years and want to enjoy that time.  

No matter how near or far retirement is for you, there are steps you can take today to prepare. Taking the time to plan now means you can shape your retirement to fit your needs and goals. Think about these steps to retirement planning and what they mean for you. 

1. Think about your retirement goal

The first step to planning your retirement is thinking about your retirement goals. 

What kind of retirement outcome are you seeking? What type of lifestyle would you like to lead? How long do you think you will be retired? What do you want to do in your retirement? Once you are clear on this, you can start figuring out how to achieve your goals. 

People are living longer than ever, meaning we must fund ourselves for an extended period once we have finished in the workforce. Planning is therefore essential to provide an income stream and ensure a stress-free retirement. 

It is never too early to start planning — the longer we have, the better we can prepare for retirement. We also have to be prepared for the possibility that retirement occurs early or unexpectedly. This can happen due to retrenchment, illness, or other factors. In these circumstances, it pays to have a retirement plan in place.  

2. Set a benchmark retirement age 

When you can retire depends not just on when you want to leave the workforce but when you can afford to. The earlier you start planning for retirement, the better your position will be to retire at the age you want to. 

The average life expectancy for an Australian woman is 85 years, and for an Australian man 81 years. But you could live to be 100, so you have to prepare for beyond the average. 

The retirement age in Australia is defined as the age at which you are entitled to the age pension. For those born on or after 1 January 1957, the retirement age will move to 67 years as of 1 July 2023. 

So, theoretically, an Australian woman who retires at 67 and lives until the average age of 85 will need her retirement savings, investments, and superannuation to fund her living expenses for 18 years. 

Of course, some people plan to retire much earlier than 67, while others will keep working well beyond this age, either due to necessity or just because they enjoy it. To plan your retirement, you need to decide when it will start. This allows you to calculate the resources required to fund it.  

3. Determine how your spending will change in retirement 

Spending patterns change when we leave the workforce. Australians tend to spend less when they retire. Even wealthy retirees tend to eat out less often and replace clothing and furniture less frequently. Retirees generally no longer need to spend money on children or work-related expenses.

According to the Association of Superannuation Funds of Australia’s Retirement Standard, to have a ‘comfortable’ retirement, a couple who own their own home will need an income of about $70,500.¹ A single person will need an annual income of more than $50,000. 

This is likely to increase over time due to the effects of inflation. If you can work out how much money you will need to live comfortably on an annual basis, you can figure out what is required to generate sufficient income to fund this (after taxes). 

4. Figure out how much money you’ll need in retirement

When you retire, you’ll need to fund your everyday living expenses. There may also be other expenses you need to meet. You may want to pay off your mortgage or take the opportunity to travel with greater frequency. If this is the case, you’ll need to factor these expenses into your retirement planning.

If you want to retire at 60, a common approximation used to calculate the amount you will need to retire is to multiply your after-tax retirement expenses by 15. So, if you estimate you will need $50,000 annually in retirement income, you will need income-generating assets of $750,000 to create this income stream. 

Investing in income-generating assets such as ASX shares, bonds, or exchange-traded funds (ETFs) means you will generate income through dividends or coupon payments. 

5. Factor in any additional income you expect to receive

You may choose to retire gradually, reducing your working hours slowly over time. Or, once you have retired, you intend to pick up some part-time work.

You may also receive income from rental property or existing investments. You should factor this into your retirement planning if you expect additional retirement income. Any additional income you receive can go toward your living expenses, reducing the amount of retirement income you need to generate from your investments.

6. Pick an investment account for retirement savings

Most of us will rely primarily on our superannuation to get us through retirement. But that doesn’t mean we can’t also start putting funds aside to supplement our superannuation. 

When planning your retirement, you’ll need to decide how you want to save for it. A wide variety of investment options are available, and it is up to you to decide which options best fit your needs. This will depend on your age, financial situation, and risk profile. 

Planning for retirement is an important part of financial planning. Many people utilise the services of a financial advisor to provide financial advice regarding their retirement strategy. 

People with greater risk tolerance or a longer period before retirement may choose higher-risk investments, such as ASX shares or international shares. Others may choose to invest in property or fixed interest options. Whatever investment option you choose, the power of compounding means the earlier you start, the better. 

7. Start saving for retirement

The most important step in retirement planning is to get started. The earlier you start saving for retirement, the more time your savings have to grow into a substantial retirement nest egg.

Many save for retirement by making a salary sacrifice into their super fund, over and above the mandatory contributions from their employer. This can provide significant tax advantages. Many people also save for retirement outside their superannuation fund by seeking to grow their net assets. 

Investing in financial assets is a common method for growing net wealth. This means investing in the stock market or in other financial instruments. Although this can be daunting for first-timers, plenty of resources are available to help you learn how to get started. Remember, it is never too early to have a financial plan. 

What safety net is there if I don’t make a plan?  

The superannuation payment is compulsory in Australia, so most workers will have at least some superannuation to rely on when they reach preservation age. 

The government age pension is also available to those who meet the income and asset tests.² The full-age pension is currently about $26,689 yearly for singles and $40,238 yearly for couples. Depending on your income and assets, your age pension entitlements may be reduced, or if they are above a certain level, you may not be eligible for the pension at all. 

Each dollar they earn over $190 per fortnight for a single person will reduce the age pension by 50 cents. Each dollar of combined income over $336 per fortnight for a couple will reduce the pension by 50 cents.

If you are a single homeowner with more than $622,250 in assets or a homeowner couple with assets of more than $935,000, you will not be eligible for the pension. 

The age pension is designed to provide income support to older Australians who need it. Most retirees would prefer a more salubrious retirement lifestyle than the pension provides. This is why planning for your retirement is so important. Putting in the effort today can pay dividends when it comes time to leave the workforce.