Elderly figures on bench

Home loan guide / Investing

How much you really need for retirement

3 min read

Caitlyn Smith

We explain what can impact the cost of your retirement, and how much you'll need to have a comfortable lifestyle when you stop working.

So, you’ve just turned 65… Congratulations! You’ve reached retirement age. You have arrived at the end of the board game that is The Game of Life and all your hard work has finally paid off. Now you can sit back and reap the benefits of a life well-lived. But, before you start deciding whether to retire at Millionaire Estates or Countryside Acres, you should take a moment to consider just how much money you really need to retire.

Beach chairs on on sand

How much is this going to cost me?

To put the answer quite simply, there is no simple answer. The amount you need for retirement depends on many different factors. Mainly, it depends on what sources of income you may have, how long you live, what kind of lifestyle you wish to live, as well as what future medical costs you may have. You will also need to account for that dreaded ‘T’ word… tax.

Will tax have an impact on my retirement?

Even though you are no longer working, for tax purposes, you will still need to declare any income that you receive. This includes payments from things such as your super, annuities and government payments. If you are being paid a pension through your super fund you will need to declare this on your tax return. Depending on what tax you have paid through your fund, there may be a taxable portion and a tax-free portion of your pension to declare.

You could also be receiving payments in the form of annuities. For those that don’t speak ‘Tax Talk’, annuities are a form of secure income made through regular payments. You can buy an annuity from a life insurance company or super fund in return for a lump sum payment. Just like pensions, annuities also have taxable and tax-free components that need to be declared.

Lastly, if you are receiving any government payments (e.g. age pension, carer payments, or Newstart allowance), you must also declare them. As exciting as all this sounds, what it basically means is if you are receiving an income in any of these forms you need to declare it on your tax return, and you may need to pay tax on some of it. Sounds great, we know.

What if I need to move to a retirement facility?

If you need to move to a retirement facility, you have two choices: a retirement village, or an aged care home. They may sound similar, but they offer very different things, and it will be up to you to decide which is right for you.

A retirement village offers you all the independence of living in your own home, with the safety and security of additional care services. The cost of moving into and living in a retirement village can vary depending on the type of property and services offered. Generally, you will need to pay a deposit before moving in. Depending on whether you will be renting or owning the property you will also need to pay an entry fee or purchasing price, these are usually set at the current market price. You may also need to pay stamp duty on the property, depending on your tenure.

Lastly, the retirement village may charge extra fees for services such as security, upkeep of facilities, and laundry. As always, these fees will vary from property to property, so it will pay to compare them.

Overhead retirement village

Aged care homes offer more hands-on care and resources, they are better suited for retirees who are unable to live alone. There are four types of costs associated with living in an aged care home, a basic daily fee, a means-tested care fee, accommodation costs, and extra fees for additional services. Basic daily fees can be charged to anyone and as the name suggests, they cover the basic costs of living in the aged care home. This fee is set by the Department of Human Services and is currently set at 85% of the single Age Pension (a max of $50.16 per day). Keep in mind that because the Age Pension is increased or ‘indexed’ twice a year, the basic daily fee is also increased. It should also be noted that the basic daily fee is the same for everyone, whether you receive the Age Pension or not.

The means-tested care fee is determined by the Department of Human Services based on your income and assets. Essentially, if you have more, you pay more. Aged care homes can also charge a fee for the accommodation they provide, which can be used to cover maintenance costs. This fee will vary from facility to facility and can be affected by things like local property prices, the type and size of your room, and amenities provided (e.g. gym, swimming pool, gardens).

Once again, you may also be charged a fee for any extra or additional services provided (e.g. cable/satellite television, phone/internet, onsite hairdresser/beautician). Whether choosing a retirement village or an aged care home, it will pay to do your research and compare facilities in order to find the right place for you and your situation.

The bottom line

So, what does all of this really mean for your retirement? Well, it is estimated that a single person wanting to live a ‘modest’ lifestyle will need around $24,270 per year to live. And this figure increases to $43,695 per year (or a lump sum of $545,000), if they wish to live ‘comfortably’.

Basically, what this means is that (if you are eligible to get the Age Pension), on the day that you plan to retire, you will need around $545,000 in your super. Keep in mind that this amount is only based on the assumption you only live to 85 and that you own your home. So, if you’re planning on living until you’re 100 or you need to move to some form of retirement facility, your final figure will be different. As with all major life decisions, doing your homework and getting the facts will help you choose the most suitable retirement plan for you.

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