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How much is enough?

The money you live on in retirement will likely come from various sources. How much money you might need to fund your retirement is different for everyone. Take steps now to know the main pillars of your retirement planning and what they mean for you.

Two young grandchildren sitting with grandpa reading

Calculate your potential income in retirement

To get a realistic view of your income in retirement, compare your current after-tax income with your potential income from super and Age Pension.

Replacement ratio made simple

Thinking about how much money you’ll need in years from now may seem complex. The replacement ratio method is a simplified approach to estimating how much income you’ll need to maintain your pre-retirement lifestyle.

The ratio most cited is 70% to 85% of your pre-retirement income1.

Influencing factors include:

  • reduced taxes due to extra deductions and tax-free amounts;
  • reduced payments due to whether you own, rent or downsize your home; and
  • reduced costs of clothing and commuting.

1How much super you need (Moneysmart)

Replacement ratio shortcomings

However, replacement ratios can be problematic because a one-size fits all approach doesn’t include your individual circumstances. Your situation may require a rate of 100% of your pre-retirement income—or more.

Replacement ratios ignore whether there is enough income to maintain that level of spending throughout retirement. Influencing factors include:

  • increased medical expenses;
  • increased travel or lifestyle expenses;
  • increased costs of supporting adult dependents or grandchildren; and
  • increased additional services to assist with at-home living.

To achieve a more personalised and confident estimate, consider in detail your health, lifestyle, goals, income and spending.

Changing needs and wants

Your needs and wants will change over time as you move from a more active phase to a passive phase and finally to a frail phase. These changes can impact the amount of money you might need.

  • The active phase: age 60 to 65

    You’ll spend more on your lifestyle, leisure and family activities. You’ll use your new free time to do the things you may have missed out on when you were in the workforce.

    Watch for ‘lifestyle creep’. It’s easy to spend more money when you have more free time. Check your retirement budget to make sure you’re sticking to your plan.

    Consider reviewing your investment options. If your balance is high and the market looks unstable, you could choose a lower-risk investment option to keep your income stable and avoid drops in your retirement money during occasional market downturns.

    If the market looks strong, you might take advantage and invest your higher balance on a higher risk, higher return investment option to grow your super while you’re accessing it.

  • The passive phase: age 65 to 75

    Even if you’re not able to journey far from home, you’ll still have lifestyle costs. These could include making your home more suitable for your health needs, engaging more paid services such as lawn mowing, or travelling short distances to visit family.

    You might give up paid work and take up volunteering. You’re more likely to monitor your retirement income balance and swap some nice-to-have spending with saving for emergencies or care in your later years.

    Consider downsizing your home. If you downsize, you could invest up to $300,000 in your retirement savings. If you’re a couple, you can each contribute $300,000 to your retirement income.

    Visit the ATO to find out more about downsizer contributions.

     

  • The frail phase: age 76+

    You may experience restricted mobility or need assistance with daily activities to live independently. This could reduce your appetite for travel and leisure activities.

    Most of your money will go towards essentials such as food and medical expenses. You might need to look at options for a nursing home or hospital care. You might take a lump sum from your retirement savings to modify your home or cover the cost of care.

    Review your estate plan so your family know your personal and financial intentions.

Ask yourself

When do you plan to retire? Using the average Australian life expectancy as a guide, how many years do you expect to be in retirement?

 

What kind of retirement lifestyle do you want to live? Do you want to maintain what you have now? Would you be okay with a little less? Do you want more?

 

What are your plans for retirement? Do you intend to travel a lot or purchase property? Do you want to keep some money as part of an inheritance?

Explore our Retirement guides and workbook

Our Retirement guides and workbook consider your retirement planning concerns and challenges. Take a look

How should I retire?

Whether you’re thinking creatively about working longer or dipping in and out of the workforce, phasing your retirement gives you flexibility. You can adjust your work pattern to suit your lifestyle and ease into retirement on your terms.

When (or why) will I retire?

Deciding when to retire is a personal decision, however there are five factors that generally influence when or why people retire. They can trigger a decision to retire—sometimes earlier than expected.

  • Health: You may have a health scare or issue that means you can no longer do your job. You may also decide to retire to care for a loved one.
  • Work: The demands of work can become more tiring as you get older, or you may be out of work because of redundancy or the end of a work contract.
  • Friends and family: Retirement may be appealing if your friends or family are enjoying retirement.
  • Financial independence: You may reach pension age, receive a financial windfall, or find that you have more financial resources after children leave home.
  • The right time: It may simply feel like ‘the right time’.

Key tasks for my life stage

Fully imagine your life after work. Discuss these key tasks with your partner to see if you’re aligned.

  • You’re 10 or more years from retiring

    You want to track your super, set retirement goals and establish a timeline.

    Read Preparing for retirement

  • You’re not retired but will be soon

    You want to plan how to use your super to support your retirement. Includes choosing a retirement solution.

    Read Moving to retirement

    Complete the workbook

  • You’re retired

    You have a retirement income strategy in place and want to know more about the stages of retirement, how to manage your account and what to do if something changes.

    Read Living in retirement

Where to next?

  • Learn more about your retirement goals and the key tasks for your age and life stage. Read our Retirement guides and workbook.*

  • Expand and organise your thinking with our self-paced Retirement Ready online program and discover practical and thoughtful decision-making steps.
  • Attend a webinar and join the conversation with our experienced Member Education team.
  • Visit Services Australia and check out their financial webinars on offer through the Financial Information Service.
  • Join our 3rd Act community and receive smart, interesting quarterly newsletters straight to your inbox.

*CSCri and CSC Retirement Profiles are not currently available to ADF Super customers. CSC is working with relevant Australian Government departments to enable CSC to offer an account-based pension product such as CSCri to our ADF customers where possible. For more information read our CSC retirement income strategy.

We’re here to guide you

Meet with a CSC Financial Planner

Before you make any decisions about your super, consider your options and have a conversation with an authorised CSC Financial Planner. To book your appointment call 1300 277 777.