What does ‘comfortable’ in retirement mean?

Comfortable can mean many things – could be a warm blanket on a comfy couch or an upgrade to business class on your next flight – but for all purposes here we’ll limit it to financial security.

Even then, ‘comfort’ is tricky to define because it’s largely a matter of personal preference. 

A guaranteed roof over your head, a balanced diet, time for friends and family may be more than enough, or ‘comfortable enough’ for some, but your picture of a comfortable lifestyle may be a little different. Maybe you’ll only be truly comfortable if you can afford to do and buy whatever you like, whenever you like.

What’s the super “standard” for comfort?

Google “comfortable lifestyle” and you’ll get a lot of results about retirement and superannuation, most of them referencing the Association of Superannuation Funds of Australia (ASFA) and its retirement standard.

According to the ASFA standards 2018, a comfortable retirement lifestyle comes with an annual price tag of $42,764 for singles and $60,264 for couples; a far cry from the $150,000 “buy and do what I want” kind of lifestyle.

The standard assumes you own your own home and you’re in pretty good health. And on this budget you can:

·         Eat at restaurants regularly

·         Have private health insurance

·         Own a reasonable car and electronic equipment

·         Buy good clothes and have regular haircuts

·         Afford one holiday in Australia and “occasional international travel”

ASFA’s 2018 ‘modest’ retirement standard - $25,841 per year for singles, $36,897 for a couple – is considered better than the Age Pension, but still only able to afford basic activities.

You can check out ASFA’s detailed budgets for comfortable, modest and pension-dependent retirement lifestyles at superguru.com.au

So how much do we actually spend in retirement?

While the ASFA standards are widely used and widely quote, not everyone thinks they’ve got it right. Some critics say the ‘comfortable’ standard is overly generous whilst others say the exclusion of rent and mortgage debt means it’s not nearly enough.

The Expenditure patterns in retirement report, commissioned by the Australian Institute of Superannuation Trustees (AIST) and conducted by Monash Business School’s Australian Centre of Financial Studies, is based on 12-years of data (2002-2014) from the Household, Income and Labour Dynamics (HILDA) survey of about 8,000 households.

It found 80% of retired households reported spending levels at ASFA’s ‘modest’ standard of living. Less than 7% were found to be living at or above the ‘comfortable’ standard of living.

So how much do I need?

Both the ASFA benchmarks and insights provided by the HILDA studies are useful guides on how much you’ll need in retirement.

Just to complicate things more there’s also the concept of income replacement rates; the OECD, for example, suggests the target retirement income for a median income earner should be 70% of their financial earnings, while the Worlds Bank suggests 78% of net average lifetime wage.

But just how much you need depends on the lifestyle you’re accustomed to and the future life you imagine for yourself. It also depends on your personal circumstance now and at the time you retire.

The bottom line

However you define it, if you want to live comfortable in retirement, now is the time to start thinking about what that life looks like and how you’ll pay for it.

A good way to start calculating your own benchmark is to work out exactly what you’re spending now and identify the expenses that are likely to continue in retirement – then subtract the costs you don’t think you’ll need.

Your super is likely to make up a good proportion of your retirement savings and making small changes now can have a big impact on your final balance; things like consolidating multiple super accounts into one, making extra contributions – before and/or after tax – and making sure your money is invested in the right option for you.

Try using our Virgin Money Super Retirement Income Calculator to see the difference these small changes can make.

There’s a lot to consider – but we are here to help. Get simple super advice from qualified financial advisors via our specialist Helpline Advice Service. Call us on 1300 652 770, 8am-6pm AEST, Monday-Friday.