How to know if you can afford to retire


Alex Ritchie
Dec 20, 2017( 4 min read )

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Whether you’ve just started your first job, or you’re reaching the end of your long career, you’ve probably tried to figure out when you can afford to retire. 

While there’s no set-in-stone timeframe, you can help calculate whether you can afford to retire based on a few factors: 

  1. How much do you need to live comfortably? 

Did you know many Aussies believe they’ll need $1 million or more in superannuation to live a happy and comfortable retirement? 

However, according to the Association of Superannuation Funds of Australia (ASFA), if you breakdown all your typical expenses (holidays, food etc.) and categorise them by ‘comfortable’ or ‘modest’ lifestyles, you can get a more realistic look into how much you’ll need. 

Lifestyle type

Savings required at retirement

Annual spending in retirement

Comfortable lifestyle: couple

$640,000

$59,808

Comfortable lifestyle: single

$545,000

$43,538

Modest lifestyle: couple

$35,000

$34,687

Modest lifestyle: single

$50,000

$24,108

Those within the modest lifestyle category can look to the other factors, such as the age pension, to fund their retirement.   

  1. Can your superannuation balance fund your lifestyle? 

As most Aussies are hoping their superannuation will be enough to fund their retirement, you’ll need to know that your superannuation balance can help fund a comfortable lifestyle for your post-workforce years. 

ASIC’s Money Smart Retirement planner can help you to calculate how much money you’ll have by your desired retirement age. If you believe you’ll need more than predicted, you should consider moving to a more competitive superannuation fund, as well as salary sacrificing. 

Doing your own research around the most competitive superannuation funds for yourself could help you to live the retirement lifestyle of your office daydreams. Superannuation comparison tools can help you to start planning for your ideal retirement today.  

Salary sacrificing involves making voluntary super contributions that you and your employer both agree to pay from a portion of your pre-salary tax. Your employer superannuation guarantee contributions mean that you will see 9.5 per cent of your income go into your retirement nest egg. 

For Aussies who can afford to, particularly those in their early 20s, single and earning a decent living wage, why not see about adding a little more? If a 25-year-old salary sacrificed the equivalent of $50 from their monthly wage until they were 65, they’d have an extra $24,000 to spend in retirement. 

  1. Do you have any investments? 

Whether it’s Bitcoin or bonds, another way to calculate whether or not you can afford to retire (especially if you don’t believe your superannuation balance will cut it) is to look to your investments. 

Many Aussies will look to investing in residential property to fund their retirement years. Not only can you take advantage of tax benefits such as negative gearing, your tenants can help fund your retirement, particularly if you’ve already paid off your investment loan. 

You may also have invested in shares that are performing well enough to help fund your retirement, or have a nest egg growing in a high interest savings account or term deposit. 

Whatever you choose, adding an investment to your revenue stream will help you to fund a more comfortable retirement. 

  1. Do you qualify for the age pension? 

For those looking to live within ASFA’s ‘modest lifestyle’ category, you will probably be looking to the age pension to fund your retirement years. 

To qualify for the age pension, you’ll need to be an Australian resident, and in Australia on the day you apply. Your assets and income will then be tested to calculate how much age pension you receive. 

According to ASIC, as at March 2017 the maximum rate for an age pension is $808.30 for a single person per fortnight. For a couple, this amount is $609.30 each per fortnight. 

Office daydreams aside, through a combination of a top performing superannuation fund, investments and the age pension, you should hopefully be able to afford to retire!

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