How much can you spend in retirement?

It’s a simple and familiar concept – how much you need to live on each year will depend on the sort of retirement lifestyle you want.

Clearly there is a positive relationship between the amount of superannuation you need to retire and how much you plan to spend each year. But our spending habits vary which makes it difficult to lock in a firm number.

ASFA states in its June 2017 quarterly report that couples aged 65 today will need $60,063 a year and singles $43,695 a year for a comfortable retirement.

According to ASFA a comfortable retirement includes things like annual domestic holidays, a reasonable car, private health insurance, good clothes and enjoying bottled wine.

How much you need to live comfortably in retirement will depend on the spending choices you make, how you manage and control your budget and ensuring you don’t waste money on things which do not necessarily bring you happiness.

Brian Long, Head of Retirement at MLC uses an example of 65-year-old retired couple with combined superannuation assets of $500,000 and want to make their savings last 25 years

If the couple adopted a spending strategy of $50,000 per year, they have at least a 90% likelihood of success (that is, their superannuation assets lasting at least 25 years) whether they invest in a balanced investment option (70% growth and 30% Defensive assets) or a conservative investment option (50% growth and 50% defensive assets).

Alternatively, if they spend $56,000 annually, the likelihood of success drops to 56% with the balanced option and 38% with the conservative option. The balanced option has a higher likelihood of success, due to its larger allocation to growth assets.

While you may have limited control, as you near retirement, on the size of your nest egg, you can control how much you spend in retirement through good budgeting and monitoring. In my view managing your budget is just as important that the size of your retirement investment. I can assure you from my own experience even retirees with a sizeable nest egg can get into trouble and easily transition into an uncomfortable retirement without control on their spending.

All the best

Geoff Pacecca

Principal Adviser and Director