The retirement landscape in Australia is evolving, and it's a complex journey that many Aussies are facing. The cost of living crisis has significantly impacted the amount needed for a comfortable retirement, with new figures revealing the impact of inflation. Despite this, a recent study shows that Australians still overestimate the amount they will need to save by retirement age, highlighting a disconnect between reality and expectation.
The Association of Superannuation Funds of Australia (ASFA) has reported that the ideal superannuation balance at retirement has increased due to rising living costs and housing insecurity. The budget for those approaching retirement has increased by 1.5% for couples and 2% for singles over the three months to March, mirroring the 1.5% increase in the consumer price index. This means a comfortable retirement now requires an annual balance of $55,932 for a single person or $78,566 for a couple.
The ASFA CEO, Mary Delahunty, attributes this to factors such as homeownership, disappearing work-related costs, and concessions that reduce the price of bills and medicines. She notes that retirement generally costs less than working life, but the reality is more complex. Delahunty suggests that people are feeling the cost-of-living pressures and projecting them into retirement, leading to inflated expectations.
The data reveals that 51% of 25 to 34-year-olds believe they will need more than $1 million in today's dollars to retire comfortably, with 23% thinking they will need more than $2 million. These figures are similar for 35 to 49-year-olds, but expectations tend to soften with age, with 40% of 50 to 64-year-olds believing more than $1 million is required, falling to 29% for those aged 65 and over.
The housing crisis is a significant factor in these inflated expectations. With 51% of 25 to 34-year-olds anticipating renting or paying a mortgage into retirement, the assumption that one would own their home by retirement feels less attainable. The proportion of homeowners has fallen successively, with millennials owning their homes at a lower rate than baby boomers at the same age. Renting is rising across all age groups, and the renting population is getting older.
The financial comparison group Finder revealed that house prices in 1984 were 3.3 times the average annual income, whereas they had grown to 10 times the average salary in 2025. This indicates a significant increase in the cost of housing, making it a critical factor in retirement planning.
To achieve a comfortable retirement, Australians should aim for a super balance of $630,000 by age 67 for a single person or $730,000 for a couple, assuming they own their own home and have a 'comfortable' expenditure rate. This equates to a balance of $574,000 by age 65, based on a pre-tax income of $100,000 per year, which keeps pace with inflation. However, this assumes no career breaks due to parenthood, illness, or similar.
The ABS data released in February shows that the average full-time salary in Australia is approximately $106,657 before tax, while the median is around $88,400. Wage growth has slowed to historic lows, barely outpacing inflation, and in the high-inflation post-COVID years, wages were broadly outstripped by inflation. This trend has stabilized by 2023 but returned this year.
ASFA's recommended super balance is $98,000 at 40, $248,000 at 50, $342,000 at 55, and $449,500 at 60. The ASFA defines a 'comfortable' retirement as having access to top-level private health insurance, the latest technology, a reasonable vehicle, and the ability to take a domestic holiday each year. It also includes the ability to update wardrobes, eat out occasionally, and enjoy leisure activities.
For those who don't reach the $630,000 figure by age 67, a more modest retirement awaits, allowing for basic health insurance, cheaper technology, a cheaper vehicle, and an annual domestic trip. This level of retirement requires $110,000 in savings for a single person and $120,000 for a couple. However, both a moderate and comfortable retirement assume homeownership, with renters requiring significantly higher amounts.
In conclusion, the retirement landscape in Australia is complex and evolving, with rising costs and housing insecurity impacting expectations. Australians need to carefully plan and adjust their expectations to ensure a comfortable retirement. The ASFA's figures and recommendations provide a valuable framework for individuals to assess their financial situation and make informed decisions about their future.
