She'll be right - Part 1

Every quarter, the Association of Superannuation Funds Australia (ASFA) update their Westpac ASFA Retirement Standard. The standard benchmarks the annual budget needed by Australians to fund either a 'comfortable' or a 'modest' standard of living in the post work years.

That obviously leads us to what ASFA mean by 'comfortable' and 'moderate'. Moderate is defined as better than the Age Pension, but still only able to afford basic activities. Comfortable is defined as enabling a healthy retiree to be involved in a range of leisure activities, and to be able to purchase a range of things, including household goods, a reasonable car, electronic equipment and domestic, and occasional international holiday travel. So comfortable is not 'luxury', and moderate is probably well below what most Australians would realistically want for themselves.

Don't be fooled by the idea that you will be happy spending significantly less in retirement. Just think quickly...is there not extra hobbies and activities that you would like to do in retirement that you don't do now? Maybe some travel? And what activities that you do now will you be 'happy' to give up?

The figures released by ASFA for the March Quarter 2010 show that for a couple to lead a comfortable retirement, they will need $53, 565 per annum. And remember, this is for a 'reasonable' car, and occasional overseas travel.

The next step here is to 'carry forward' this amount of money, and work out what will be needed when you go to retire. Roughly, if you are 40, and inflation continues at an average of 3%, then you will need about $110,000 per annum to meet these living standards. And to do that, and ensure that your money will last longer than you do, you will need a capital sum of around $2,000,000. And again, this funds a 'comfortable' $53,000 lifestyle in todays value. If you want a better lifestyle, you'll need more capital.

So where does 'she'll be right' come in. ASFA statistics show that the mean balance in super for men in Autralia is $87,600 and for women is $52,300 (more on this imbalance in She'll be right - Part 3). That is a long way short of the $2,000,000 mentioned above.

Further, ASFA figures indicate that the primary source of income for 66% of retirees aged 45+ is Government Pensions, which provide for less than a moderate standard of living. 7% have zero or negative income.

Summing up then, 'most people' would want for themselves a comfortable lifestyle, but have not funded this, and are not funding this, with the result being that nearly three quarters of retirees can expect, at best, a retirement that is less than modest.

If you are lucky, then your retirement might still be a few years off, but 'she might not be looking so right' after all.