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No magic number: The price of a comfortable retirement

While recent studies estimate the total savings needed for retirement at about $1 million, specialists caution against a one-size-fits-all approach, and many Australians could be "comfortable" on less.

With an unprecedented wave of Australians set to retire in the coming decade, one nagging worry is reaching epidemic levels: How much is enough to retire on? While $1 million is generally regarded as the ‘magic number’, savvy investors will know the answer is not so simple.

As life expectancies continue to rise, the need for a well-thought-out financial plan has never been more pronounced. The elusive comfort in retirement is subjective, but financial advisers suggest a holistic approach to ensure a worry-free post-working life.

Recent studies show the total savings needed for a comfortable retirement in Australia is often estimated at around $1 million. However, specialists caution against a one-size-fits-all approach, emphasising the importance of individualised financial planning that considers lifestyle choices, health factors and unexpected expenses.

  • The main consideration, according to Wattle Partners senior financial adviser Renato Manias, should be the sort of lifestyle the individual would like to have in retirement. “The ‘savings’ goal will be different depending on your own individual circumstances,” he tells The Inside Investor.

    “The ASFA Retirement Standard provides a good indication of what savings goal you should strive to achieve by retirement, based on current cost-of-living metrics,” Manias explains. “For instance, for a couple, ASFA considers approximately $71,000 per year enough for a ‘comfortable retirement’, which would require a superannuation balance of about $690,000 for a couple at the start of retirement (i.e., age 67), taking into consideration this couple would also be eligible for the Centrelink Age Pension.”

    For single individuals, $51,000 per year should be enough for a ‘comfortable retirement’, ASFA says. That would require a super balance of about $595,000, with the Age Pension, Manias says.

    Factors including home ownership, healthcare costs and inflation rates also must be taken into account. With rising property prices, owning a home outright is considered a significant advantage, providing retirees with a valuable asset that can be leveraged for additional income or downsized to release equity.

    Healthcare costs are another critical consideration, as retirees may face increased medical expenses as they age. Incorporating these potential costs into a retirement plan is essential to avoid financial strain later in life.

    Financial advisers recommend a diversified investment strategy to build and protect retirement wealth. Traditional investment vehicles like superannuation funds, managed funds and property investments should be balanced with risk management measures to safeguard against market volatility. Australians are encouraged to seek professional advice to tailor their investment portfolios based on their risk tolerance and financial goals.

    The government’s Age Pension remains a significant source of income for many retirees, but it’s also important to build additional income streams. The Age Pension is means-tested, and relying solely on it may not provide the desired level of comfort for retirees accustomed to a certain standard of living.

    As Australians navigate the complexities of retirement planning, financial literacy initiatives are gaining prominence. It’s important to informed and engage with reputable financial resources to make well-informed decisions regarding their retirement.

    Manias also stresses that proper asset allocation is key to achieving smoother returns and reducing the likelihood of making emotional decisions.

    “The resilience of your portfolio will only be possible if you can combine a range of asset classes that are not correlated to one another, so that assets that are performing poorly today are countered by assets that are performing well today.”

    He also recommends including both passive and actively managed investments in a portfolio.

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