How much do you need to retire? Hint: maybe less than you think

So can you live on $28,000 a year? That’s the real question here. And this is a question that very few people know the answer to because, when you sum it up, how much you need to save for retirement depends entirely on how much you want to spend in retirement.

If you want overseas trips, luxury cars, golf club memberships, and regular trips to the theater, then yes, you probably almost need the “comfortable” standard of annual income the super industry suggests.

After tracking my own expenses for the past two years, I know that I cover about $88,000 in annual living expenses.

However, smash my mortgage ($31,000) and private tuition ($11,000) and I’m already banging on super industry standards for a “comfortable” retirement.

For context, I’m a high earner who spends about $6000 a year on vacations and pays about $4000 a year for gym memberships. Suggesting this is an appropriate standard of retirement living for most Australians sounds a bit ridiculous to me.

If I had to cut out vacations abroad, eat out, gym fees and stop driving to work, I’m pretty sure I could get myself somewhere closer to “modest” industry standards. And that’s a relief, indeed. Learning how to live with less is definitely the most empowering thing you can do as you prepare for retirement.

Don’t forget that once you retire, you’ll have more time to cook meals at home and less money to spend to offset the pressures of work. Also, keep in mind the main assumption behind all these retirement estimates: that people own their own homes after retirement.

Anyone still renting in retirement faces higher ongoing housing costs, and is likely to find government rental assistance grossly inadequate to cover them.

Sidenote: The important role of home ownership is also overlooked in all pension adequacy calculations in other important ways. The large assets you spend in your working life contributing to owning outright can also be an important source of income in retirement, either through privately offered reverse mortgage products or the government’s own Retirement Loan Scheme, which is a variant of that.

Who says kids need to get all the savings you used to buy your house when you die?

And then there’s always the option to keep working one day a week in retirement and earn up to $7,800 a year without affecting your retirement age.

Of course, every Millennial knows that retirement age won’t be around when they retire – and every Millennial is wrong about this. The federal government has no incentive to rectify the problem, because every dollar that Millennials save in super form will reduce the pressure on their age care budget.

It’s also a myth that you should aim for full self-sufficiency in retirement.

In fact, most retirees today receive either a partial or full age pension. This is the magical phase of life where dependence on the state is suddenly socially acceptable. Indeed, many Australians will actually receive a pay raise in retirement when they move into full-age retirement, especially JobSeeker recipients who are now expected to live on around $16,000 a year.

The final thing to note is that there are important disincentives in the age pension system which mean you can actually be penalized for saving too hard during your tenure.

When your personal savings increase beyond a certain threshold – around $250,000 for singles today – your eligibility for retirement age decreases at a considerable rate.

Load

As Money Magazine shows every year, there’s a “sweet spot” around the $250,000 super savings for singles, beyond that you can actually earn lower income in retirement because retirement age withdrawals aren’t adequately offset by increased income from your personal super savings. .

So, how much do you need to save for retirement? The simple answer is: it depends. But for most people, I suspect it’s also a lot less than you think.

#retire #Hint