Theoretically, how much money you need in retirement depends on how long you live. Although there is no such crystal ball for this, we know that improved healthcare and economy has resulted in people living longer than their parents' generation. When budgeting for retirement, try to go for the maximum life expectancy. Men can expect to live up to 86, women to age 90. This means if you retire at 60, you need to fund your living expenses for at least 26 to 30 years, if not more. Also, look at your lifestyle and medical history as well as your family's life expectancy and medical history. It's never too early to start thinking about how to maximise your income in retirement. By acting earlier, you have a better chance at achieving and funding the lifestyle you want. The Theory A common rule of thumb is that if you want to retire at 60, you will need about 15 times the amount you have calculated for your annual after-tax retirement expenses. So if you estimate $60,000 per year then you will need $900,000. If you can wait until 65, you may only need 13 times expenses, which will be $780,000. Remember, if you plan to leave a legacy to your children or have a holiday home, then you need to add the cost to this estimate. Another traditional way of working out how much you might need in retirement is to plump for 70 per cent of your net income in the last year before retirement (not too useful if you are 10-15 years away from that date). This approximation, or guestimate, was a standard for many years. However, it may be too general, and you may be better served by having a more detailed understanding of your actual needs. This is where a regular quarterly survey of current retirees comes in handy. The ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a comfortable or modest standard of living in the post-work years. It is updated quarterly to reflect inflation, and provides detailed budgets of what singles and couples would need to spend to support their chosen lifestyle. According to the latest data for September 2012, in general, a couple looking to achieve a comfortable retirement needs to spend $56,236 a year, while those seeking a `modest' retirement lifestyle need to spend $32,511 a year.
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