How much can you safely spend in retirement? We crunched the numbers
It’s pretty hard to work out how much money your super balance will allow you to safely spend each year without running out of money. So this week I sourced you a helpful view!
How much can you safely spend in retirement? We crunched the numbers
Most people, whether individuals or a couple, set a savings target for retirement, something similar to “I want to have $200,000, $400,000, $800,000 or $1,000,000, or perhaps even more available as a lump sum to fund my retirement when I get there.”
Even when you have a healthy lump sum, it’s pretty hard to work out how much money that will allow you to safely spend each year without running out of money. So this week, I’m exploring how much you can afford to spend if you want your money to last a lifetime, and what level of income that will support when you take in the age pension too.
But before we get to the big numbers, we need to understand a couple of key concepts that go into working this out.
First there’s how much do we need to live comfortably in retirement. This forms the baseline for spending on everyday living. The Association of Superannuation Funds of Australia (ASFA) says that a retired couple aged 65-84 needs $72,148 per year, and a single person needs $51,278 to live in ‘comfort’. If they’re living a more modest lifestyle, a couple needs $46,994 and a single person needs $32,665.
This assumes that you own your own home outright, and can access a part-aged pension. These amounts alone won’t give you an epic retirement per se, but it will provide us a number to compare with when we explore how much we can spend and how much we need to spend on costs of living.
The second important concept is the age pension, which 62 per cent of Australians use. For those people, the maximum amount they can take is $43,752 for a couple and $29,023 for a single person, and in addition to this, they become eligible for rent assistance which could be up to $177.20 per fortnight for couples or $188.20 per fortnight for single people.
The third important concept is how you want to budget for your own spending in retirement and in what type of spending pattern. At the core, when we talk about safe spending, we talk about safely planning for your needs, or your cost of living first, then building an additional budget for your wants, or your one-off costs and retirement experiences.
Fourth, a key ingredient of safe spending is considering how long you might live. Life expectancy for an average Australian over 65 right now is 85.3 for men and 88 for women. Any planning for safe spending really has to consider the possibility of living longer than the median life expectancy, which is more possible than ever with modern health standards.And finally, the concept of ‘safe spending’ itself, which means to have confidence to spend your retirement savings and have a 9 out of 10 chance that you will have enough money to reach your life expectancy, or perhaps even three or six years beyond it.
So let’s talk safe spending amounts, starting with a 67-year-old homeowner couple with a variety of different joint superannuation balances as they reach retirement. In the below table you’ll see that the team from Challenger have plotted how much a retired couple could draw down with a 90 per cent degree of confidence their money could last to life expectancy.
There’s lots more in this article including two really powerful tables. It has been published in full in print and digital in the Sydney Morning Herald, The Age, The Brisbane Times and WA Today Money section today. You can read it here (without a paywall).
where is the full article?
I would have to answer 'not really' or 'not at all' but there's always a thought in the back of your mind 'What if?' It's the uncertainty feeling which I think many people heading into retirement have.