Reaping the rewards
Planning makes all the difference when it comes to achieving a comfortable retirement.
Planning makes all the difference when it comes to achieving a comfortable retirement. A couple wanting a "comfortable" retirement - where they can afford to have some fun, not just pay the bills - now needs more than $1000 a week, by one estimate. A "modest" lifestyle requires $600 a week, according to the super industry's retirement benchmarks.But what is comfortable and what is modest - and how much do you need to save for one or the other?The Association of Superannuation Funds of Australia (ASFA) releases a Retirement Standard every three months and its most recent calculation is that a couple now needs $54,562 a year for a comfortable retirement and $31,263 for a modest one - an increase of 2 per cent to 3 per cent on the annual income required a year earlier.ASFA describes a modest lifestyle in retirement as being something "better than the age pension but still only able to afford fairly basic activities".A comfortable lifestyle means an older, healthy retiree can take part in a broad range of leisure activities and can afford to buy such things as household goods, private health insurance, a reasonable car, good clothes and a range of electronic equipment, it says. They should be able to afford holidays in Australia and, occasionally, overseas.WEEKLY BUDGETSASFA's latest weekly budget for a couple enjoying a comfortable lifestyle includes just less than $200 for food, $135 to own and run a car, $120 for health insurance and health care, $30 for phones and the internet, $44 for power, about $75 for housing (including insurance and maintenance), $57 towards clothing and about $85 for services such as cleaning and haircuts.In the $300-odd budgeted for leisure, there is $80 to dine out, $40 to have a drink, plus the equivalent of one movie a week. About $130 of that amount is set aside for holidays, including $50 earmarked for overseas travel.The budget for a modest lifestyle steps things down a bit, at $155 for food, $88 to own and run a car and $55 for housing costs. And it halves the amount for health care, communications, clothing and services. Power stays about the same.The biggest cuts come in leisure, where only $100-odd is set aside, including $25 to dine out and $15 to have a drink - though movie night stays. As for holidays, just $36 is set aside, for domestic travel only.The head of technical services at MLC, Gemma Dale, says you will need a sizeable nest egg to generate the income the ASFA standards target - comfortable or modest."It will take a lot of money to provide these income levels over what could amount to 20 or 30 years," Dale says.A couple, with each partner aged 60, would need to retire with a nest egg of about $535,000 to have only a modest lifestyle lasting as long as the official life expectancy of the partner likely to live longest - that is, 26 years (to 86) for the woman. If the couple wanted a comfortable lifestyle, they'd need to retire with about $940,000 in capital."That's after paying off your mortgage," Dale says. These figures assume the couple uses their super to start a pension, providing them with tax-free income, and that they don't qualify for the age pension. It also assumes their money earns 7 per cent a year and that they're prepared to use up their super over those 26 years.They would need even more if they wanted to build in a "buffer" in case one or both of them lived longer than expected, or to provide an inheritance.The earlier you would like to retire and the higher the annual income you'd like in retirement, the more super you'll need. If the couple retires at 55, rather than 60, they'll need $1.05 million for a comfortable retirement to age 86, or $590,000 for a modest lifestyle, by MLC's calculations. In contrast, if they keep working until 65, the nest egg they'll require drops to $850,000 and $480,000 respectively, because of the shorter period to cover to age 86.Investment options also play a key role and members should take advice, compare investment options and risks when planning ahead for their eventual retirement. Some options, such as "growth" are slightly more aggressive than "balanced" options.USE A CALCULATORSo how much do you need to save?That depends on how old you are now and how much you have in super already.MLC gives the example of a couple both aged 50 - let's call them Mark and Lisa - who would like to retire comfortably, in line with ASFA's definition, when they reach 60. They will need $940,000 in super in today's dollars. Let's say they have $325,000 and $150,000 in super already and they earn pre-tax salaries of $100,000 and $50,000 respectively, with their employers making the minimum superannuation guarantee (SG) contributions of 9 per cent a year, and assume their super is earning 7 per cent a year.Ignoring the proposal to progressively increase the SG rate to 12 per cent by 2019-20 (which isn't yet legislated), they could accumulate about $810,000 in today's dollars - falling short of their target. This means they could run out of money by the time Lisa turns 81. But if they were both to sacrifice $5000 of their pre-tax salary into super for the next 10 years, they could enjoy that comfortable lifestyle until Lisa reaches age 86. If they salary-sacrificed $10,000 each, they'd have a buffer in case one of them lives until 91. This is without considering other strategies to give their super a boost, such as starting a transition-to-retirement pension when they reach 55 so they can enjoy the tax savings of super while still working.You can do your own sums using the super calculator at mlc.com.au. This estimates how much super you might need and how much you might end up with. It allows you to dial variables up and down to see how you might bridge any gap.