Advice matters
How to determine your retirement spending needs

“How much do I need to save for retirement?” It’s one of the most common questions we get asked, and the short answer is: one size doesn’t fit all. It depends on the retirement lifestyle you have in mind.

Our SHARE advisers are here to guide you through the key steps to work out the amount you would need to save for your ideal retirement. Let’s explore some of these steps.

Start from your current income

Estimating your future income needs is not easy, but you have a good place to start: your current spending. This is because the amount of money you need to retire is a function of your current income and expenses, and how you think those expenses will change in retirement.

First, the basics: determine your monthly and annual costs for grocery and housing, including any property rates and maintenance, plus utilities and insurance. This is the bare minimum you’ll need, regardless of additional activities or luxuries you wish to have in retirement. Most people find it helpful to break these costs down into fixed and variable.

Then, add in discretionary spending like dining out, entertainment, and hobbies. Remember that these categories may change or shift as you transition from your working years to your retirement years.

Consider the 70-100% rule

The 70-100% rule is a common guideline when it comes to calculating your future retirement income needs. This rule suggests that most retirees will need between 70% to 100% of their pre-retirement income to maintain their standard of living once they stop working.

For example, if you currently earn $100,000 annually, you may want to save enough to have a retirement income of (at least) $70,000 per year.

Keep in mind that the exact percentage varies depending on individual circumstances. Someone who plans to travel extensively in retirement – or has rent or mortgage payments to fund – may lean closer to the 100% mark, whereas someone who envisions a quiet retirement in their mortgage-free home might be on the lower end.

How spending patterns evolve

People tend to view retirement as a uniform event, but the reality is that spending patterns tend to shift. Early retirement may see a spike in leisure activities like travel or picking up new hobbies. This is when retirees are more active and eager to explore newfound freedom.

But as retirees age, there might be a gradual transition from leisurely expenses to more healthcare-related costs. Regular medical check-ups, medication, or even specialised care can take up a larger chunk of the budget.

Some retirees set up separate budget allocations or savings for distinct phases of retirement. This can include a leisure fund for the early years and a healthcare fund for later years. Regularly reviewing these allocations can ensure that you’re both enjoying the present and prepared for the future.

Key housing decisions

If you own your own home, you might be considering leveraging this asset in retirement to boost your income. Many people do. Typically, this involves selling the house and moving to a smaller or more affordable location.

But while homeownership certainly gives you flexibility in terms of income sources, deciding whether to downsize or stay may not be as straightforward as you expect.

For example, are you emotionally attached to your home? This attachment can make the idea of downsizing unappealing. That’s why, when planning for retirement, it’s important to rely on multiple income streams, rather than just one. If your heart is set on staying, having other sources of income may mean you don’t need to sell the house and move elsewhere.

That said, make sure you also factor in maintenance costs, lifestyle needs, and location in your decision. Plus, as you age, your requirements from a home might change. Staircases can become a challenge, and sprawling gardens may require more upkeep than you’re willing to manage. These are all important factors.

Like to talk?

Are you saving for retirement and would like to make sure you’re on track? Get in touch with a SHARE adviser today. We can help you run your numbers and explore your options.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.