Do we really need $1m to retire?

How much money do you need to retire? That’s a question that vexes most of us.

Unfortunately, while the question is clear, the answer is a bit more slippery.

A popular number bandied about is $1 million. This is fine for people who have worked their entire lives with compulsory superannuation or on high incomes, but for many older people that is an impossible, if not a downright laughable dream.

One problem with that $1m figure is that it is often promoted by super groups and investment companies with a vested interest in you handing over a bunch of money to them.

Another problem is the goalposts keep moving. Inflation knocks around a lot of our expenditure. We can budget all we like to try to save for retirement, but increasing costs can bump things a bit off course.

Rising costs

Part of the problem is that the things we require most – housing, food, health, transport and insurance – are the main drivers of rising costs.

And in the YourLifeChoices Retirement Affordability Index, Australia Institute chief economist Matt Grudnoff shows that lower-income households are suffering the most. 

“Most of these drivers are what you’d call essentials. Everybody needs a roof over their heads and food on the table. Cars, trains and buses are essential for some retirees. Ageing increases the amount spent on healthcare. And so on,” Mr Grudnoff said.

“And it’s lower-income households who tend to spend a larger proportion of their income on essentials. More goes on these essentials and they have less left over for non-essentials.”

So what should you be aiming for? Well, the good news is that while that $1 million is quoted often, it’s not necessary.

Superannuation goal

In fact, your planned lifestyle should drive your superannuation goal.

You may be perfectly happy in your own home with a domestic holiday every other year. On the other hand, your expectations may be regular dining out, late model cars and an overseas trip every year. 

Independent group Super Consumers Australia (SCA) has released updated figures on what you should aim for, taking into account the increase in inflation as mentioned above. SCA says the amount you need to retire has increased by 3 to 8 per cent due to inflationary pressures. 

These figures assume you own your own home. 

For pre-retirees aged 50-59, singles on low income should aim for $91,000, medium income, $317,000 and high income $777,000.

For couples, those figures are $116,00, $425,000 and $1.037 million respectively.

For current retirees aged 65-69, SCA says single low income earners should aim for $76,000, medium income $279,000 and high income $795,000. For couples it should be $95,000, $371,000 and $1.055 million respectively. 

SCA emphasises these figures are just a guide, and people who rent or experience significant health problems will probably not have the spare income to match the targets. 

Do you have enough money, according to the above targets? Do you think they are realistic? Why not share your thoughts in the comments section below?

Also read: Making the right retirement choices in your 40s and 50s