Cost of a comfortable retirement

Your four Generations columnists. Source: National Features

HOW much money will your generation need to pay for a comfortable retirement?

GEN Y - Justine Davies

SHORT answer: more than some will have.

Each quarter the Association of Superannuation Funds of Australia (ASFA) publishes an estimate of annual retirement costs. Last week they advise that a single person needs an annual income of $41,169 to fund a comfortable retirement.

Adjusting for annual inflation of 3 per cent, a 30 year-old today will need to be generating an income of $117,500 each year to be comfortable at age 65. That translates to a lump sum of around $2 million.

So that's what you'll need to have stashed away in order to be comfortable.

But what is "comfortable" anyway?

Well, according to ASFA, a "comfortable retirement" is one that allows a retiree to "be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally (budget) international holiday travel."

It even allows for eating out occasionally and enough money left over to buy gifts.

So comfortable - but not exciting.

Importantly though, the ASFA retirement calculation assumes two significant things: that you own your own home outright and that you're in good health.

Similarly, if you're not in perfect health (and while most of us are living longer, we're not necessarily living better) then you can expect some hefty medical costs.

In other words: plan on needing a nest egg of more than two million.

Justine Davies is finance editor and commentator with financial research and ratings firm Canstar.

GEN X - Bruce Brammall

COMFORTABLE?! Who wants "comfortable"? Raise your hand if exceedingly average, mundane and boring appeals to you?

No one? Right, let's get real.

Let's substitute "comfortable" for ... "obscenely wealthy".

Gen Xers, aim for ridiculously lavish.

This is where you spend and splurge the equivalent of Fiji's gross domestic product annually. Sometimes maybe even in Fiji, but largely equally across the seven seas.

Golf at the world's greatest courses, flown to in a chopper with your Golden Oldies mates, followed by dinners at restaurants that would cost most a second mortgage, bedding down in hotels frequented by the stupendously famous.

OK, maybe call this a "stretch target".

But unless you aim somewhere north of mediocrity, the abyss of common-ness awaits.

If "time is money", Gen X still has oodles of the essential ingredient needed to turn "comfortable" into "magnificent".

And that's the sort of retirement I want.

Don't you?

How much moolah is that?

Here's one formula.

What's your dream retirement income? Whatever that figure is, multiply it by 20.

If you and your partner want, in today's money, $200,000 a year, then you need $4 million in income-producing assets. Exclude your home, as it won't generate income.Your definition of "obscene" will be different. As will the age you want to retire.

And inflation will ramp these figures up stupendously in years to come.

Bruce Brammall is the author of Debt Man Walking (debtman.com.au) and principal adviser with Castellan Financial Consulting.

BABY BOOMERS - Mark Bouris

THE answer to this question depends on what you consider to be comfortable.

As Justine highlighted, ASFA says a single person needs $41,169 a year and a couple $56,317 a year to have a comfortable retirement. That includes basic necessities like health care, housing, electricity, food and a bit of money for leisurely activities.

So "comfort" - if you're not a fan of travelling or doing much more than playing a round of golf once in a while - will still set a person back well over $600,000.

To enjoy retirement and be able to do what most people want to do, that number should probably be much closer to a million bucks.

Here is the kicker.

According to the latest Australian Bureau of Statistics release, the median superannuation balance for a 55-64 year old male was $91,353 and the median balance for a 55-64 year old female was $54,987.

So where we are is a world away from where we need to be.

For Boomers, this is a tough pill to swallow because chances are that you're either entering retirement now, or, if you're at the younger end of the generation, you're spending the next 15 years of your working life trying to play catch-up.

And that's usually what I hear from Boomers in their 50s - that they waited too long to pay attention to their super and now they are in a mad dash to make up for their lack of savings.

So what can we do?

Well, we Boomers can help to educate the younger generations about the importance of starting to save early.

Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road.

RETIREES - Kerrin Falconer

FOR most retirees this question is really academic for several reasons.

Firstly, retirees have finished work and are not receiving salaries or wages.

Secondly, barring a fairy godmother, a money tree or a sizeable inheritance, what retirees have now in the way of investment funds is it, and there is not much chance to work harder, longer or smarter to build up the retirement nest egg further.

The more pertinent question for retirees to decide when considering how to fund their retirement is, do you want to leave an inheritance? What have the kids or grandkids done - or not done, to deserve an inheritance?

Or even if they haven't managed to completely annoy the stuffing out of you, do they need it more than you do now?

And like Mark has mentioned, ASFA explains how much you need for a comfortable retirement. According to ASFA, to fund a comfortable retirement a couple needs a lump sum of $510,000.

This assumes that funds earn 7 per cent, that funds are run down and that a part age pension is received. For those who do not want to run down their capital, things are very different.To support an income of $56,000 a year, about $800,000 would be needed and this assumes a 7 per cent return.

This also assumes that everything is hunky dory as far as markets go, because to get a 7 per cent return, some exposure to the growth assets of shares and property would be needed.

For those who get nervous at the mere mention of shares or property, then a higher amount would need to be invested.

For some, there will be no choice as to whether they will leave an inheritance or not.

Kerrin Falconer is a finance writer with 15 years' financial planning experience.

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Australians short on retirement funds

Senior couple on yacht, man using laptop and woman writing postcardSMALL FILE FOR SIZING ONLY Source: Getty Images

AROUND 60 per cent of Australians admit to being unprepared to stop working and expect to run-out of superannuation and cash savings half-way through their retirement.

A survey of 1000 Australians, conducted by banking giant HSBC, found workers expect to be forced to rely on the government pension when their retirement savings run dry after an average of just 11 years.

And in a worrying development for future government budgets, 56 per cent of Australians have never saved for their retirement outside of their superannuation.

HSBC head of wealth management Graham Heunis said future generation are going to be saddled with huge debts as the country's ageing population heads into retirement.

"People need to start saving earlier otherwise the budget pressure will be huge in 20 years,'' he said.

The most recent research shows the average Australian male has just under $200,000 in superannuation while women have only $112,000. And Australians expect 30 per cent of their retirement income to come from the pension, 20 per cent from superannuation, 14 per cent from cash savings, 11 per cent from property and eight per cent from shares and investments.

Mr Heunis said Australians tended to focus on short-term savings goals, with 53 per cent prioritising on saving for things like a holiday over retirement.

The survey results come amid speculation about possible changes to the superannuation system in the Gillard Government's Budget in May.

The Financial Services Council and the SMSF Owners' Alliance yesterday joined forces to call on the Government and Coalition to guarantee no further tax changes will be made to superannuation.

FSC chief executive John Brogden said the negative impact of tax and other changes to superannuation in recent years has seen a net reduction of $5.4 billion from the system.

"Every time a new tax is threatened, confidence in the system is lost,'' he said. "There have been 10 substantial tax changes to superannuation since 2008. The industry has strongly supported sensible reforms to the system, but we've had enough.''

Mr Brogden said that only Australians who start work from 2019 - when superannuation contributions are 12 per cent and retire 40-50 years later will get the benefits of a lifetime of adequate contributions.

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Australians short on retirement funds

Senior couple on yacht, man using laptop and woman writing postcardSMALL FILE FOR SIZING ONLY Source: Getty Images

AUSTRALIANS expect to survive an average of just 11 years on their retirement savings, including superannuation, before they are forced to rely on a government pension.

A survey of 1000 Australians, conducted by banking giant HSBC, found respondents expected their superannuation to run out, on average, just over halfway through their retirement.

Australians expect 30 per cent of their retirement income to come from the pension, 20 per cent from superannuation, 14 per cent from cash savings, 11 per cent from property and eight per cent from shares and investments.

The survey results come amid speculation about possible changes to the superannuation system in the federal government's budget in May.

HSBC head of retail banking and wealth management Graham Heunis said many were financially unprepared for retirement.

"Whether it is the culturally relaxed Australian attitude towards saving, our high cost of living, or an expectation that our super and pension will cover us in retirement, the reality is many Australians are at risk of getting caught very short, financially, towards the end of their life," he said.

"Australians believe they can live a more modest life in retirement. However, this attitude fails to take into account how they will cope with the likely increase in the health and aged care costs of a frail retirement."

Mr Heunis said Australians tended to focus on short-term savings goals, with 53 per cent prioritising on saving for things like a holiday over retirement.

But, he said, younger Australians expected to be less reliant than those currently closer to retirement.

Respondents aged between 45 and 54 expect 45 per cent of their retirement income to come from the pension, while those aged between 25 and 34 expected the pension to account for just 19 per cent of their income.

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