Key Points
- Australians aged 50 and over lack understanding about retirement finances, according to new research from AMP.
- Three in four respondents had not sought financial advice, and three in five wish they had started planning earlier.
- The Association of Superannuation Funds of Australia estimates single people need $595,000 in retirement savings.
Many Australians dream of a comfortable retirement, complete with plenty of downtime, a flexible schedule, and disposable income.
But how much does it cost to make those dreams a reality?
Australians are living longer and spending more in later years, but are "financially illiterate" when it comes to retirement, according to research from financial services company AMP.
The superannuation and pension systems exist to set up and support Australians through retirement, but many people are unaware of how much super they need, whether they are eligible for a pension, or how to plan for their future.
Do you need a million dollars to be able to retire?
When it comes to retirement, the key figure is your superannuation balance, which you can
Estimates vary on the amount of superannuation needed for a comfortable retirement, and a figure of $1 million has been widely circulated.
Matt Grudnoff, senior economist at the Australia Institute, said the cost of retirement varies depending on a number of factors.
"What you need retirement or what you might think is comfortable, somebody else might think is way too little or way too much," he said.
"If you go out there and search for 'what is a comfortable retirement' you'll get some fantastically high super balances that people say you need ... and if you look at what people are actually retiring with, it's nothing like those amounts."
Grudnoff said the $1 million estimate is not accurate, and for most Australians, living expenses decrease in retirement.
He also noted most retirees will be eligible for some form of government pension.
According to the Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard to have a ‘comfortable’ retirement, single people will need $595,000 in retirement savings, and couples will need $690,000.
The ASFA estimates the minimum annual cost of a comfortable retirement to be $50,207 for singles and $70,806 for couples.
Superannuation advocacy group Super Consumers Australia has also released targets, estimating singles need to save $317,000 by the time they are 65, while couples will need $425,000 for a 'medium' retirement.
The targets factor in additional income that retirees may be eligible for through the Age pension and have been adjusted for inflation.
Xavier O'Halloran, director of Super Consumers Australia, said most people seek to maintain their standard of living in retirement.
He said amounts would also vary depending on retirees' housing situations.
"So of course there will be people on lower incomes and higher incomes and the goal of most people was to keep the standard of living they had during their working life," he said.
"Another really important thing to factor in is whether you own your home at retirement, because we found in our work that the amount of money you need if you're say a renter compared to a homeowner is far higher."
Australians 'financially illiterate' over retirement
According to AMP's Retire With Confidence whitepaper, most older Australians are unprepared for retirement and find it challenging to navigate the system.
AMP found three in four Australians aged 50 and over have not sought financial advice for retirement planning, while two in five don't know if they'll be eligible for aged pension benefits.
Three in four have not sought financial advice, and three in five wish they had started planning for retirement earlier in life, AMP found.
AMP CEO Alexis George said a growing number of Australians are facing challenges heading into retirement.
"Seven out of ten older Australians also don’t know what an account-based pension is – even though it is the main income-generating option for Australians in retirement," George said.
“This lack of financial knowledge about retirement is despite Australia having one of the world’s highest GDPs and the fifth largest pool of superannuation savings in the world."
What do you need to do to prepare for retirement?
The Australian government's advises making a retirement plan to help manage finances and cope better as life and priorities change.
A retirement plan can take into account timing, lifestyle and priorities, income and living costs, and plans for the future.
O'Halloran said the most important preparation is figuring out your budget and how much you will need to maintain your standard of living.
Calculators on or superannuation sites can give a personalised calculation of how much income you will need from superannuation and pension to meet this amount.
"Some other really important things to keep in mind as well, making sure you're in a good-performing superannuation fund and not being charged high fees," he said.
"You can get the information from the ATO Super Fund comparison tool, which gives you a sense of the types of returns and fees that people are paying for their superannuation at the moment once you compare them all side by side."
Grudnoff said it is important to seek independent advice and noted everybody's retirement needs are different.
"The big question is, the question people want to answer is, well, how much do I need to retire? And that's the one question that you really can't answer," he said.
"It's the sort of simple answer that I think people are looking for and it's the one answer that's actually really difficult to give."
