Why knowing your retirement number can be the best antidote to FORO

Written and accurate as at: 13 April 2023

If you’re feeling nervous about whether your retirement savings will last as long as you do, you’re not alone. The Fear Of Running Out (FORO) can often rear its head during times of escalating inflation. Getting a good grasp on your retirement number, and what you can do to achieve it, can help with this. Let’s dive in.

The problem with retirement estimates

Retirement estimates can certainly be a useful starting point, but as the title suggests, they’re just estimates and they don’t take into account your unique set of preferences or circumstances.

One of the most widely known retirement estimates is published by the Association of Superannuation Funds of Australia (ASFA). Their quarterly Retirement Standard provides a breakdown of expenses for both a comfortable and modest retirement lifestyle for singles and couples – and the super balance required to achieve this.

ASFA’s December 2022 figures1 revealed that single people need $595,000 and couples need $690,000 in super retirement savings to achieve a comfortable retirement. These numbers assume you begin retirement at age 67, own your own home, and enjoy a part Age Pension, which will top up your savings to provide singles with a total annual income of around $49,462 and couples $69,691.

But what is comfortable to you, may not be comfortable to someone else, and vice versa. Your ideal retirement number is completely unique to you, and dependent on a number of factors, including: 

  • Your planned retirement age
  • Where you’ll live in retirement
  • The kind of lifestyle you want in retirement
  • Your state of health now and into the future
  • Whether you will be eligible for the Age Pension
  • Other sources of income you might have to support you (such as non-super investments)
  • Whether you will own your home outright, or be paying rent or a mortgage.
  • Getting to grips with your retirement number

If you’re in your late 50s or 60s already, your current spend today may not be a million miles away from what your spending might look like in retirement. A common rule of thumb is that you can expect to spend around two thirds (67%) of your pre-retirement income (net of income tax) to maintain the same standard of living in retirement2. Like the ASFA figures, this assumes that you own your own home and don’t have any mortgage or rent to pay. 

If you’re keen to crunch some numbers, another approach is to create a budget for retirement. It’s not as difficult as it sounds, and a good starting point is creating a budget for your typical monthly expenses today. Looking at each expense, you can use your best guess and adjust it to what you think that number will be in retirement. You may spend less on things like eating out or buying clothes, but you may spend more on things like travel or medical expenses. 

Once you have an idea of your needed annual income, you can work out what that might mean in terms of savings you’ll need to retire with, taking into account other sources of income you may have to live on, such as  part-age pension payments and investments outside of super.

Putting FORO to bed, once and for all

Once you know your retirement number, you’re in the driving seat. You no longer have to live in fear of running out, and you can start taking control of your retirement. Some of the things you might consider to boost your retirement savings include:

  • Salary sacrificing into super, making personal contributions, and exploring the many other ways to boost your super balance
  • Investing inside and outside of super
  • Checking that your money is invested appropriately for your risk profile and how near or far you are away from retirement
  • Cutting back on non-essentials to boost your savings power. ASFA’s ‘Small change, big savings’ tool is a good illustration of how easy it can be to make a difference
  • Consider whether you are open to working for longer, or working part-time in retirement.

These are just some ideas, and there are plenty more things you can do to get your retirement savings to where you want them to be. 

1 https://www.superannuation.asn.au/resources/retirement-standard
2 https://moneysmart.gov.au/grow-your-super/how-much-super-you-need