Page 5 - FWP Wealth-Adviser-Issue-121 (FWP)

ISSUE 121
SEPTEMBER 2025

AS OF JUNE 2025, ASFA ESTIMATES FOR RETIREES AGED 65-84 ARE:
Comfortable lifestyle (homeowners) Modest lifestyle (homeowners) Modest lifestyle (renters)
Single (lump sum) $595,000 $100,000 $385,000
Couple (lump sum) $690,000 $100,000 $340,000
Single (per year) $53,289 $34,522 $49,044
Couple (per year) $75,319 $49,992 $66,296

A “comfortable” lifestyle, according to ASFA and AMP, Uncertainties also affect expenditure. As the Grattan
typically allows for a good standard of living, social activ- Institute and AMP note, spending typically declines
ities, health cover, and leisure, including the occasional throughout retirement, though health and aged care costs
international trip. Modest budgets cover basic living needs can rise with age. Discounted amenities and pensioner
and a few extras, sitting above the Age Pension alone. For benefits introduce more nuance.
renters, “modest” is the primary reference, as the challenge
of covering market rents results in significantly higher The Real Drivers: Savings Rate, Asset Allocation,
required savings. and Behaviour
Super Consumers Australia provides alternative lump More important than any benchmark is the power of
sum targets, grounded in the actual spending data of current individual behaviour and strategy. Morningstar’s projec-
retirees. Their rule-of-thumb targets also distinguish tions show that compulsory super guarantee contributions
between singles and couples, and between low, medium, invested in a balanced fund may only replace 50-63% of
and high spending groups. The Age Pension remains pivotal pre-retirement income—below many benchmarks. AMP’s
in almost every scenario, especially for low to medium calculators and case studies provide similar stories: the
spenders. hypothetical “Mac”, aiming for a comfortable retirement,
A common “rule of thumb” persists: most retirees should finds his projected savings fall short of anticipated needs by
aim to replace about 70% of their pre-retirement income. up to ten years—a wakeup call that many share.
Yet, as seen in these models, the actual lump sum needed is Asset allocation is a critical factor—those who leave a
shaped by lifestyle goals, housing status, and access to the higher proportion in growth-oriented investments over
pension. A single “magic number” does not fit all. time gain considerable compounding benefits. Even a small
increase in annual return (as demonstrated by shifting from
What the Numbers Miss: Risks, Assumptions, balanced to high-growth options) can translate into tens of
and Human Factors thousands of dollars more in retirement. Likewise, con-
While helpful, these benchmarks are built on layers of trolling fees, minimising unnecessary trading, and appropri-
assumption. The classic retirement model presumes steady ately managing tax have a strong cumulative effect.
career-long employment, uninterrupted super contribu- AMP’s Lifetime solutions—such as the Super Lifetime
tions, and investment returns that mirror long-term aver- Boost—illustrate a practical response to the interplay
ages. The AMP article highlights how the age at which you of investment returns and social security eligibility. By
retire, your health, partner’s plans, and debts all influence structuring part of the pension within a Lifetime Pension
both your balance and your drawdown period. Longevity product, clients can benefit from more favourable asset test
risk is real: retiring at 65 means planning for a retirement treatment for Age Pension purposes, effectively boosting
that may last 20-25 years. retirement income for longer.
In practice, individuals face career breaks, part-time Lack of confidence, inertia, and poor financial literacy
years, market downturns, and periods out of the workforce are ongoing challenges, as shown by AMP’s research into
for family duties. As both Morningstar and Super Consumers Australians’ retirement readiness. Tools like calculators and
Australia caution, “no one number fits every situation—as- simulators can help, but education and proactive advice are
sumptions matter.” Policy improvements (like increasing the just as essential for making sound choices over time.
super guarantee to 12%) have helped mitigate risk, but they
cannot eliminate it for everyone. Beyond the Maths: Flexibility, Resilience, and
For those renting in retirement, research from ASFA, Living Well
AMP, and others shows a substantially higher risk of finan- Planning for retirement is not just about arithmetic or
cial insecurity. Housing costs remain a key determinant of chasing a “right number”; it is about building in resilience,
wellbeing, with renters facing bigger savings requirements flexibility, and life satisfaction. Saving and investing not
and greater risk of poverty. only protect against the known risks but offer a payoff if

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