Recently I had a milestone birthday. If you are anything like me, milestone birthdays make you stop and think about the future. In my case, while it is still a while off, it made me stop and think about my retirement.

It comes at an interesting time. This year, the Government will be reviewing the retirement incomes system.

The Association of Super Funds Australia advise that to have a comfortable retirement, couples that own their own house need savings of $640,000 to provide an income of $61,000 per year in retirement. Now, I am an advocate for people taking advantage of the tax benefits of investing through super. However, I wonder if this advice might be a way to get you to invest more in super – so the super funds can collect more fees.

Digging deeper, I found research by Milliman on actual expenditure that shows a different picture. We don’t spend as much in retirement as we are told. There is also a pretty big drop off in how much we spend as we get older.

The top 25% of retiree couples aged between 65 and 69 currently spend $55,000 per year. The amount they spend then drops off by about 2% each year so by the time they are 85 they spend less than $35,000.

Potentially this means three things.

  1. The first is don’t judge how much super you need by your current income. Most calculators that predict how much super you need look at your current income. This is irrelevant, as there is very little correlation between your past incomes and how much you spend in retirement.
  2. The second is you don’t need to have as much saved in super as we are told. Assuming they own their house and have no other debts, a couple can have a combined super balance of $400,000 and still retire at 60. This will be enough for them to
    • have an income of $55,000 per year
    • go on a few overseas holidays
    • go out and socialise
    • spoil their grandchildren
    • if they live into their 80’s or 90’s, they will still be earning more than they can spend
  3. Thirdly, and the one that I find most exciting is this knowledge should allow people a little more freedom to enjoy life while they are young and healthy. Yes, if you have more than $400,000 combined in your super you will have more capital when you are older, but why wait? Enjoy life now.

Unfortunately, there isn’t any comparable data for singles or those that rent. However, if for singles had expenditure of $45,000 per year as the benchmark for the top 25%, someone with $250,000 in super would be able to retire at age 62 and still live a good life with a few holidays thrown in.

Finally, the moral of this article is make sure you save a little now, which for most people happens automatically through their super. However, don’t put off having fun and enjoying your life.

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About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.

General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)