When can you afford to retire?
Work weary? Over your job or boss? Or just dreaming about a lovely long holiday? The last one is what you should be focusing on, along with all the other ways you want to fill your days when you retire.
Once you know what your retirement looks like, you can figure out how much money you will need to fund it each year and then how soon you can actually do it.
Your leisurely life (and its cost)
The post-paid-work "you" will probably be very busy, at least at first. There might be trips to take, grandchildren to play with, creative projects finally to begin, a boat to sail and volunteering to do. You may also lead a rich – requiring a level of riches – social life (indeed if you have only one weekly social event, you probably need to build them up before collecting your gold watch).
What this will all cost is obviously very individual but one of the best guides comes from the Association of Superannuation Funds of Australia's retirement standard index. Updated quarterly, it calculates the income required for both a "modest" and "comfortable" retirement.
For a couple, a modest lifestyle costs $34,216 a year (so after tax). This standard of living is just a bit better than the aged pension and precludes most travel, top-end private health insurance and nice clothes and restaurants. It's not what most of us would aspire to but, interestingly, the full aged pension for a couple now affords this level of lifestyle.
Your long leisurely life
Next you need to decide for how many years you might need this income. Life expectancy has been consistently rising in the Western world and this presents a particular challenge for single women, who typically have smaller super balances due both to earnings breaks and an earnings shortfall, yet who usually live longer.
For boys born today, the average life expectancy is 80.3, while for girls it is 84.4, says the Australian Bureau of Statistics. More relevantly, a man who has already reached age 55 can expect to live for another 27.7 years; a woman, 31 more years, according to the Australian Government Actuary.
That probably seems a lot of years to find that $60,000 (or more) but bear in mind your income requirement will fall over those years. The Productivity Commission outlined three phases of retirement: Active, passive and frail (sorry!). Looking on the positive, frail people spend less (though medical bills may rise).
What total you will need
The lump sum that will support your ideal lifestyle depends not just on how long your retirement will last but also your investment returns. The higher your returns, the less money you will need at the outset, but also the larger the risk of losing that money.
ASFA calculates the lump sums required for both a "modest" and "comfortable" retirement. These are based on a retirement age of 65, an average life expectancy, receipt of a part aged pension, a fairly achievable 6 per cent annual investment return and that you will ultimately draw down all capital (forget the kids for once; this is finally about you!).
For a modest lifestyle the required lump sum is small at $50,000, because the aged pension covers it. For comfortable, ASFA calculates you need $640,000. (The amount for a single is not that much less, $545,000, as many expenses remain the same).
But don't despair if your current super balance is far below this – most are. Besides, not everyone agrees with ASFA's one-size-fits all method of calculating your required retirement income, and therefore lump sum, needs.
UniSuper has developed its own Retirement Adequacy Index to help forecast how these needs differ as a function of salary while working. The premise, one that is well accepted around the world, is that the more you have earned, the more you will ultimately spend, and vice versa.
It's possible that your retirement might set you back far less than the next person's. In any case, UniSuper CEO Kevin O'Sullivan says if you aim for 70 per cent of your pre-retirement income, this should secure for you a comfortable retirement.
How soon you can retire
So what then is the formula for deciding when you can retire?
Factoring in will be the age at which you can access your super, which is not until 60 if were born on July 1, 1964 or later. And the pension access age (for those who are eligible) is between 65 and 67 if you were born before January 1957, but 67 from there. (Note ASFA says changes to the aged pension assets test, which come in January 2017, mean a couple who wants a comfortable retirement now needs to save an extra $130,000 – this is reflected in the above figures).
Any lifestyle compromises you are willing to make will also bring forward your possible stop-work date. And downsizing your home might be a viable lump-sum top-up option.
Of course, every year you push back retirement is one year less you have to personally fund. That may be an "uncomfortable" proposition, but the fact is Australians are both living and working longer.
More palatable is probably transitioning to retirement: retaining some paid work for a time to bridge both the life-change and funding gap.
You can forecast the retirement balance you are on track for on themoneysmart.gov.au super calculator. Be sure to play with how to swing the big retirement trade off in your favour: how early you can retire versus how well you can afford to live.