How much super do you need for comfortable retirement? New figures released

A comfortable retirement in Australia now requires an annual balance of $55,932 for singles and $78,566 for couples, according to the Association of Superannuation Funds of Australia (ASFA). To reach this standard by age 67, individuals need a superannuation balance of $630,000 and couples need $730,000, assuming they own their home.

These figures represent an increase of $3,530 for single people and $4,691 for couples compared to the previous 12 months. ASFA reports that cost-of-living pressures and housing insecurity have pushed these ideal balances higher.

Why has the cost of retirement increased?

Inflation has driven up budgets for those reaching retirement, with costs rising 2 per cent for singles and 1.5 per cent for couples in the three months ending March. Consumer price index inflation grew by 1.5 per cent during that same period.

According to the Australian Bureau of Statistics (ABS), the primary cost drivers for the year ending in the March quarter were electricity, which rose 25.4 per cent, and automotive fuel, which increased 24.2 per cent. Beef and coffee and tea also saw increases of 11.8 per cent and 10.7 per cent, respectively.

Did You Know? House prices in 1984 were 3.3 times the average annual income, but they grew to 10 times the average salary by 2025, according to the financial comparison group Finder.

Do Australians overestimate their retirement needs?

Despite rising costs, ASFA figures show that four in ten Australians overestimate the amount they need to save. ASFA CEO Mary Delahunty said people often project current cost-of-living pressures forward into their retirement expectations.

Among 25 to 34-year-olds, 51 per cent believe they need more than $1 million in today’s dollars to retire comfortably, while 23 per cent believe they need over $2 million. These figures are similar for the 35 to 49 age bracket, with 52 per cent and 22 per cent, respectively.

These expectations soften with age. Only 29 per cent of those aged 65 and over believe more than $1 million is required, and only 8 per cent expect to need more than $2 million.

Expert Insight: Samantha Carter notes that the widening gap between perceived and actual retirement needs reflects a deep-seated anxiety over housing. As home ownership becomes less attainable, the traditional safety net of a paid-off mortgage vanishes, potentially forcing future retirees to rely more heavily on liquid assets than previous generations.

How does the housing crisis affect superannuation goals?

Housing insecurity is a primary driver of inflated savings expectations. Delahunty noted that the long-held assumption of owning a home by retirement feels like a “much less attainable reality” for many younger Australians.

ABS data from late last year indicates that renting is increasing across all age groups and the renting population is getting older. Millennials own homes at a lower rate than baby boomers did at the same age.

This shift significantly alters required savings. While a “moderate” retirement for homeowners requires $110,000 for a single person and $120,000 for a couple, renters need $340,000 and $385,000, respectively, to achieve the same modest standard.

What are the recommended savings targets by age?

To reach the $630,000 target by age 67, Australians should aim for a balance of $574,000 by age 65. This assumes a pre-tax income of $100,000 a year that keeps pace with inflation without career breaks.

ASFA Retirement Income Review submission – February 2020

ASFA’s benchmarks for recommended balances include:

Age 40: $98,000
Age 50: $248,000
Age 55: $342,000
Age 60: $449,500

ABS data from February shows the average full-time salary in Australia is approximately $106,657 before tax, while the median is around $88,400.

What may happen next for Australian retirees?

If the trend of declining home ownership continues, a larger portion of the population may be forced to target the higher savings brackets required for renters. Future retirement budgets could fluctuate further based on the volatility of essential costs like electricity and fuel.

Younger workers may continue to overestimate their needs if current inflationary pressures persist, which could lead to altered investment strategies or delayed retirement plans.

Frequently Asked Questions

What defines a “comfortable” retirement?
ASFA defines it as having top-level private health insurance, the latest technology, a reasonable vehicle, and the ability to take one domestic holiday per year. It also includes the ability to eat out occasionally, maintain a home with cooling and heating, and regularly visit the cinema or exhibitions.

What is the difference between a comfortable and modest retirement?
A modest retirement provides only the basics, including basic health insurance, budget technology, a cheaper vehicle, and one annual domestic trip. It requires a limited budget for clothing, a few cheap meals out, and strict monitoring of utility costs.

Why does retirement often cost less than working life?
According to Mary Delahunty, costs decrease because many people own their homes outright, work-related expenses disappear, and concessions reduce the cost of medicines and bills. Additionally, super pension income is generally tax-free after age 60 for most Australians.

How are you adjusting your savings goals to account for inflation?