How to Fund a Comfortable Retirement

Written on the 7 June 2024 by Dean McKinnon

As of June 2023, there were about 4.2 million retirees in Australia.  The average age was just over 65, and the Age Pension was their main source of income.  But are retirees living a comfortable retirement?

The term ‘comfortable retirement’ is subjective.  For some retirees, the Age Pension payment is sufficient to maintain a ‘comfortable retirement’.  For others, the Age Pension payment would not meet the expenses incurred for their ‘comfortable retirement’.  Some retirees do not qualify for Age Pension and must meet their retirement expenses from their own savings.  So, how do you know if you will be able to enjoy a ‘comfortable retirement’?

Having sufficient financial resources to maintain a ‘comfortable retirement’ will depend largely on your retirement goals and objectives.  A retiree that loves to travel, eats out a lot, updates their vehicle every couple of years and has a large ‘empty nester’ home to maintain will likely need to have considerable financial resources to maintain their ‘comfortable lifestyle’.  A retiree that lives a more modest lifestyle will likely need a lot less.  Having an idea of what your retirement expenses will be is a good starting point to determine if you’ll have a ‘comfortable retirement’.

Preparing for retirement can be a daunting task.  Likely the most challenging aspect of retirement is how to fund expenses when the employment income stops.  Living expenses will need to be met when you stop working, but how much will they be?

Living expenses when you’re still working are generally different to when you’re retired.  Transport costs, for example, are likely to be a lot lower as you may not have to commute to work and back every day.  But travel expenses may increase as you’ve got a lot more time on your hands and you want to go on those ‘retirement holidays’ you’ve been planning for years.

Preparing a detailed retirement expenditure analysis is the best to determine what financial resources you will need.  Knowing how much money you will need to meet your desired expenses, not just for the next 12 months, but throughout your expected retirement, is the key understanding your ability to meet your retirement goals and objectives.  Even if you don’t have the time or patience to complete detailed expenditure analysis and cash flow forecasts, having some idea of likely retirement costs will be helpful.

The Association of Superannuation Funds of Australia (‘AFSA’) produce a detailed expenditure budget report every financial year quarter.  The report lists the average costs for most retirement expenditure and provides assessments for both couple and single retirees.  Moreover, a budget is produced for different retiree age groups, as generally the older we get the less we spend.  AFSA also provide an estimate of cash savings required to meet those expenses.  The limitation of these reports is that not all of us have the same goals and objectives and therefore, expenses.

In summary, how much do you need to fund a ‘comfortable retirement’ will depend on what you consider to be ‘comfortable’.  The best way to determine your own requirements is to complete a detailed expenditure analysis and cash flow forecast.  If you need help, don’t hesitate to contact us today and arrange your free initial appointment to discuss your retirement requirements.