I found and read with interest the ASFA (Association of Superannuation Funds) Retirement Standard research report from February this year. This is a piece of research published and updated quarterly to give an indication to presumably the average Australian, how much is enough.
The result of the research indicates how much you would need if you wanted either a "Comfortable" or "Modest" retirement lifestyle in current day dollar terms and the most important thing is it is based on clearly identifiable estimated, yet realistic budget data for either couple of single retiree. It is clearly a good attempt at showing us that it is possible to estimate what to a lot of people is a real unknown, and more importantly should be used to drive every Australian to ask some real hard questions about how they are going with their retirement plans.
The budget used in the research has been updated to include more modern demands and reflects changing living standards. In particular it includes budget for Communications, Health, Energy, Clothing, Household goods and services, Recreation and Transport. To give you an indication of the budget used I have copied the December 2011 quarter data below:
| Modest lifestyle – single |
Modest lifestyle – couple |
Comfortable lifestyle – single |
Comfortable lifestyle – couple |
|
| Housing | $58.20 | $55.87 | $67.46 | $78.20 |
| Energy | $34.35 | $45.62 | $34.86 | $47.28 |
| Food | $74.61 | $154.56 | $106.59 | $191.86 |
| Clothing | $18.08 | $29.36 | $39.14 | $58.72 |
| Household goods and services |
$26.08 | $35.36 | $73.36 | $85.94 |
| Health | $34.32 | $66.24 | $68.09 | $120.18 |
| Transport | $92.21 | $94.82 | $137.41 | $140.02 |
| Leisure | $73.40 | $109.36 | $222.44 | $304.83 |
| Communications | $9.30 | $16.29 | $25.57 | $32.55 |
| Total per week | $420.57 | $607.47 | $774.93 | $1,059.57 |
| Total per year | $21,930 | $31,675 | $40,407 | $55,249 |
| *ASFA Retirement Standard - December Quarter 2011 | ||||
A Comfortable Retirement as described above enables an older, healthy retiree to be involved in a broad range of activities and to have a good standard of living including the occasional domestic and even international holiday – perhaps more frequently with the current exchange rate! Both situations assume you own your own home outright and are healthy! Mmm – now there is something we all should work on.
Is this enough for you? Or more importantly, if it is, how much capital would you need in order to produce this amount of retirement income EVERY year, increasing with inflation, until you decided to pass on? Well, now that is the really tough question. And, is it a question you have asked you SMSF Advisor? Have you benchmarked a targeted return as part of your investment strategy, and is your advisor reporting to you quarterly on how you are tracking to your target? If not, you may need to take a greater interest in what your advisor is actually doing for you, and more importantly, what have you invested in?
We often hear about individuals who are so happy that they are now in control of their own superannuation and have set up a Self-Managed Fund. Great, well done, you have taken the first step. The important point though is this is all useless if you are not serious about getting an appropriate return on YOUR capital AND you are aiming towards a particular return benchmark. There is so much uncertainty in the current investment markets and many clients have moved to cash. Are there alternative investments? Should you be considering other absolute return investments? Will cash get you to the lump sum you need to provide YOUR "Comfortable Living"? Perhaps $55,000 per annum is NOT the "Comfortable Retirement" you are accustomed to – so as you have taken control, you are the only one to blame if you don't get there.
If you need some support in setting targets, visit https://www.moneysmart.gov.au/
Remember, "if you don't know where you are going, you are bound to end up somewhere else"! - "Yogi" Berra, Baseball Player
