• hello@vostroprivate.com.au
  • Phone. 03 9867 4345
Do you actually need $1m to retire?


New analysis challenges the widely touted view that couples need $1 million in super to enjoy a comfortable lifestyle in retirement, with Choice spin-off Super Consumers Australia saying retirees with low spending patterns can potentially bow out of the workforce with $88,000 in super, without their living conditions deteriorating.

The new research analysed pre-retiree and current retiree spending patterns to determine what it takes to live a “low” spending, “medium” spending and “high” spending lifestyle in retirement.

For example, a single pre-retiree aged 55-59 who plans to spend around $55,000 a year in retirement is considered to have a “high” level of spending, and as such needs to save $745,000 by the time they’re 65, the analysis found, based on the retiree owning their home, or not paying rent or a mortgage. See other scenarios below:

  • All cohorts are assumed to also receive the age pension, which is expected to make up 91 per cent of income for retirees within the low-spending cohort.
  • Meanwhile, single retirees aged 65-69 with medium- to high-level spending patterns require between $258,000 and $743,000 by the age of 65.
  • Couples aiming for similar lifestyles will require between $352,000 and $1.02 million in savings, the research found.
  • Single retirees also aged between 65 and 69 planning a more modest annual spending need $73,000 by the time they’re 65, while couples need $95,000. As with the pre-retirees, it’s assumed that retirees with this spending pattern will have the age pension make up 91 per cent of their income.

Super Consumers Australia suggested its medium-spending target of $258,000 in savings by retirement would provide a single person a comfortable retirement.

However, that figure is at odds with the Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard, which suggests a single person will need $545,000 to achieve a comfortable retirement.

“Having credible targets, based on actual spending, means people can confidently spend and get on with enjoying their retirement,” said Super Consumers Australia director Xavier O’Halloran.

The three savings targets, high, medium and low, are based on what people tend to spend in retirement, and include a “buffer” to provide confidence that their savings can weather market turmoil and are based on growth asset allocation assumptions of a 60/40 split and a mean one-year nominal net return of 5.60 per cent.

However, ASFA chief executive officer Martin Fahy said the standard is “forward-looking, aspirational and resonates with retirees and their lived experience”.

“At a time of rising inflation and year-on-year increases in health care and aged care costs, Australians are obviously worried about having enough to meet their retirement needs,” said Dr Martin Fahy.

Mr O’Halloran also took aim at the common belief that retirees need $1 million in superannuation.

Noting that couples with high spending patterns will generally need around $1 million to maintain their standards in retirement, he added that the message that all retirees will generally need $1 million to retire is “actually quite harmful”.

“That can lead to over-saving, it can lead to them making sacrifices during their working life that they don’t need to make, if they just want to maintain their standard of living."    
Share this article:
Related articles