How much do you need to retire at 65?
Australians born after 1965 will now be expected to work longer in life to receive the aged pension, but for those who can afford it, an early retirement is still possible.
As part of the Abbott Government’s controversial federal budget, Joe Hockey announced the retirement age will rise to 70-years-old from 2035.
Mr Hockey says the pension currently costs “more than the entire defence budget” and is rising to $72 billion.
The decision is controversial in that lower income earners, manual workers and indigenous Australians are likely to bear the brunt of the changes.
• Try the ASFA Retirement Standard calculator here
But with a healthy superannuation and forward planning, Australians do not need to rely on the aged pension and work until aged 70 to retire.
So how much is needed to retire and still live comfortably?
Qualifying for the pension
To qualify for the full aged pension under the current legislation, Australians must have a private income of up to $156 per week for a single and up to $276 per week for a couple.
If you are a single earning more than $1841.60 per fortnight, or a couple earning more than $2817.20, you will not qualify.
The pension is also asset tested, with the government considering the value of financial investments, superannuation, business assets, cars, personal effects and more.
Part-pensions cut out when assets are worth more than $672,750 for home-owning singles and $815,250 for singles without a house.
For couples, this amount is $758,750 if you are a homeowner, or $901,250 for non-homeowners.
Basic lifestyle (aged pension only)
SuperGuide.com.au says a “basic” lifestyle funded by the current Australian aged pension pays only $21,913 a year for a single person or $33,036 for a couple.
It covers just 27 per cent of the average male weekly income.
While the aged pension includes discounts on health services and amenities costs, the minimum fortnightly pension rate is just $383 per week.
The pension rate is less than what ASFA recommends for a modest lifestyle after retirement – 14 per cent of aged pensioners live under the poverty line.
Modest lifestyle
A modest retirement lifestyle comes in just above the aged pension, providing an income of $23,283 per year for singles, and $33,509 for couples.
This retirement option only allows for low-cost activities and does not allow any overseas travel.
According to ASFA, singles retiring with this amount must budget $75 per week for food and $17 per week for clothing.
To fund a modest lifestyle without the age pension, SuperGuide.com.au says Australian singles are expected to retire with $432,000, and couples $621,000.
Those who are eligible for a full pension can retire with less money if they still want to live a modest lifestyle.
According to SuperGuide.com.au, single pensioners would need to retire with $25,000 and couples would need to retire with $7000 to live modestly.
Comfortable lifestyle
A comfortable retirement provides an annual income of $42,158 for singles and $57,665 for couples.
Living on this income means that retirees can afford things like private health insurance, good quality household goods and overseas travel.
On a comfortable retirement, singles are allowed $108 a week for food and $38 for clothing.
According to ASFA, a comfortable lifestyle enables a retiree to “have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”
This retirement option requires singles to save superannuation of $785,000 and couples $1.07 million.
SuperGuide.com.au says that those eligible for an age pension but want a comfortable lifestyle need to retire with at least $527,000 if they are a couple and $465,000 if they are single.
Want even more?
Retirees who want to maintain the lifestyle that they enjoyed while they are working obviously need to save more.
SuperGuide.com.au says a couple who would like a 22-year retirement with an income of $80,000 per year will need to retire with $1.47 million in superannuation.
If you like this then read…
Top tips for working until you’re 70
Advisor: who is hit hardest by retirement reform?
