How much should I save for retirement?
When you’re in the throes of your working life, saving for retirement can often take a back seat – especially when other milestones such as buying a home or raising a family are driving your attention.
Most of us can bank on having some savings for retirement, thanks to the Australian superannuation guarantee that requires employers to put a percentage aside for our retirement.
But is that enough? Especially if you’ve taken time out of the workforce to raise a family or embarked on a period of self-employment.
In this article, we look at why saving for retirement is important and how much you should aim to have in the bank before you hang up your hat.
Why should we be saving for retirement?
The answer to the question might appear self-evident. We need to save for retirement to have a nest egg to live on in our later years when we no longer working.
However, the further you dig, the more you discover that saving for retirement is more complex than having a healthy-looking bank balance.
Securing your financial future
The money you accumulate for retirement is expected to last for the rest of your life – without having the security of a regular salary coming in. The funds will also need to cope with unexpected expenses, as well as on-going care and assistance in later years.
How long are we spending in retirement?
According to the Australian Institute of Health and Welfare, life expectancy for men is 81.2 years and for women 85.3 years.
If we take the superannuation preservation age of 65 as the benchmark for retiring, Australians will be spending about a quarter of their lives out of the workforce.
Understanding that should affect how you approach saving for retirement.
When should saving for retirement begin?
That’s a trick question, of course.
The answer is as soon as you start earning income.
Others warn that you’d better start taking super seriously by your mid-thirties or suffer the consequences.
In reality, most people are focused on other finance goals such as purchasing a car, buying a home, starting a family or a business, before they consider a distant retirement.
So, the next best time to start saving for retirement is today.
Is super alone enough to fund your retirement?
Your employer’s compulsory superannuation is a great start but depending on your account balance and preferred lifestyle, you might want to look at different ways to increase the balance.
The good news is that there are multiple ways to increase the amount of money you have in retirement, and they include:
- Salary sacrifice to add pre-taxed wages into your superannuation fund
- Add post-tax income to your fund
- Have other investment schemes
- Selling the family home to downsize and put the balance into your super
Before embarking on any of these options, your first investment should be taking the time to find a trusted financial planner who understands your circumstances and goals.
Find out more about how to create a retirement plan.
What should we have saved by 50?
According to the Queensland Government’s QSuper fund, the average balance for men between ages 45 to 54 is $219,300. For women, the figure is $136,000.
These figures are averages and don’t address your individual circumstances. It you’ve spent part of your career in lower paying roles or have taken time out of the paid workforce to raise children or to care for family members, your balance may be lower.
As you can see from the infographic below, the figures needed to support a comfortable retirement are much higher – $595,000 for a single person and $690,000 for a couple. 
*Figures correct as of September 2024.
*Sourced from: ASFA Retirement Standard. Moneysmart.gov.au
How much super should I have at 50?
Super guru has an interesting calculator that tells you how much you should have in your superannuation based by age. Today, a 50-year-old (born in 1974) should have a balance of $296,000.
Don’t panic if your superannuation balance is nowhere near that level. There are things you can do to improve the amount of money you have to retire on, whether you are intending to enjoy a completely self-funded retirement or using a mix of super and the aged pension.
Learn if $1 million is enough to retire here.
Salary sacrifice
As part of your transition to retirement, you can talk to your employer about taking some of your pre-tax income and putting it into your superannuation. This may also come with other tax advantages that you should discuss with your financial planner.
Learn more about salary sacrifice here.
Add more post-taxed income to your super
Speaking of tax advantages, you can also contribute a percentage of your post-tax super to your fund and receive a tax advantage. You can put up to $120,000 per year into your super each year without being subject to any additional tax.
Additional investments
According to the Motley Fool, 85 percent of all adult Australians are seeking investments outside of their superannuation to fund their retirement. Bank savings is the most popular single form of additional investment, followed by property.
Downsizer super scheme
Turbocharge your superannuation by downsizing. Through the Downsizer Contribution Scheme, you can put up to $600,000 (per couple) from the sale of your family home into your retirement fund. You must have owned the home for at least ten years and be your primary place of residence to be eligible for the program.
Learn more about pensioners downsizing here.
Continue working (even after you’ve reached pension age)
There’s no obligation to give up work once you’ve reached retirement age. Many people enjoy the interaction with other people and purpose of working part time as well as the added income.
Even if you’re on the aged pension, you can continue to earn an income without affecting your eligibility.
Learn more about the work bonus here.
How do I calculate how much savings I’ll need for retirement?
The best way to work out how much savings you’ll need in retirement is to understand the expenses you’re likely to have over the 25 or so years you might have in retirement.
The first place to start is understanding your budget.
Assuming that you’ve reached retirement age, and you own your home, you’re likely to find your expenses in retirement to be reduced by about 30 percent.
So, a good rule of thumb to have about 67 to 70 percent of your working life income to enjoy the same lifestyle you have pre-retirement.
What to include in a retirement budget
Your retirement budget is going to change over time – prioritising travel and leisure in your younger retirement years, then spending more on medical and support services in your later years.
Eliminating debt
Aiming to be debt-free for retirement not only adds to your peace of mind but also gives you more opportunities to have the lifestyle you want. This is why it is important to prepare for retirement in the years before you reach your superannuation preservation age.
If retirement is looming and you still have debt, take the time to sit down with a financial planner to prepare a strategy to reduce as much of that as possible before retirement.
Travel plans
Enjoying a long, bucket list holiday is typically on top of the agenda after retiring, so make sure to account for that in your retirement budget.
While it may not be an overseas holiday every year, there are great ways to maximise the time and flexibility you have in retirement including taking advantage of off-peak travel or being ready to travel at short notice.
Learn more about how to travel (cheap) in retirement.
Everyday household items
The good news is that everyday household expenses tend to go down in retirement. There is less expenditure on things like furniture for the house and less spending on clothes. Without the daily commute to work, transportation costs are also greatly reduced.
There is also a way to further reduce those bills and that is by downsizing. Look for a new home rightsized for the lifestyle you want, one that doesn’t have the costs of repairing and maintaining a large family-sized home and that is also cheaper to heat and cool.
Increased medical expenses
Unfortunately increased medical expenses are to be expected in retirement. However, there are ways to save, thanks to things such as claiming your private health insurance rebate, regularly comparing insurers, and ensuring you’re eligible for various government concessions.
But what about unexpected medical costs? Or budgeting for upcoming treatment such as a knee replacement? The Federal Government has a website that allows you to search by procedures, medical specialties and even by Medical Benefits Schedule number.
Will I run out of money in retirement?
It’s a common fear that most people have. However, a report in 2020 revealed that a large number of retirees died with more than 90 percent of their assets still available.
If you manage your budget effectively and claim government entitlements that you’re eligible for, it is unlikely that you will run out of money in retirement.
Downsizing from your family home to an over-50s retirement community like GemLife is a great way to buy a new home and add the difference to your superannuation – in addition to enjoying a great holiday-style resort environment.
And there is more good news. There is a way to regularly withdraw from your superannuation and not run out of money. The ‘four percent rule’ says you can spend up to four percent of your balance each year and not run out of money – thanks to the principle of compound interest.
This figure is a general rule of thumb, so it is important to speak to a financial planner who will be able to give a more comprehensive answer based on your specific circumstances.
Start a new chapter with GemLife over 50s resorts
Making your rightsizing move to a GemLife over-50s lifestyle resort could be a great way to maximise your income in retirement.
GemLife is a land lease community, which means that you own your home and simply lease the land that it’s on.
The modest weekly site rental fee covers the cost of resort maintenance and gives you access to first-class facilities including a well-appointed Country Club, including heated swimming pool, gym, tennis and pickleball courts, lawn bowling, grand ballroom and more.
You also save on every day running costs thanks to GemLife’s industry–leading virtual power plant which substantially reduces homeowners’ power bills.
Located in some of the most sought-after tree change and seachange locations in Australia, GemLife is a whole new life for over 50s. Contact us today for more information or request an info pack.