For years, the ASFA Retirement Standard has been the unofficial “bible” of Australian superannuation. It gives pre-retirees a clear, aspirational target for a “Comfortable” retirement (currently around $595,000 for a single homeowner).
But if you’ve ever looked at that number and wondered, “Is that really enough, or will I fall short due to rising costs?” you’re not alone. We’ve been diving into the evidence, and the truth is, the ASFA standard is a fantastic starting point, but it’s not a finish line. For many, relying solely on the ASFA lump sum figure carries a genuine risk.
The ASFA Standard: A Solid Budget, A Risky Target
The ASFA Retirement Standard is composed of two parts, and it’s important to understand the difference:
1. Annual Expenditure (High Confidence)
The cost-of-living budgets (the annual dollar figures for Modest or Comfortable spending) are generally considered reliable. Why? Because they’re updated quarterly using specific inflation indexes for different expenses (like healthcare, food, and transport). ASFA’s detailed budgets reflect the current, real-world cost of a particular lifestyle.
- The Takeaway: Use the annual spending figure (e.g., $53,289/year for a single person living a ‘comfortable’ lifestyle) as a realistic benchmark for what your current spending goals would cost in retirement.
2. Lump Sum Target (High Risk)
This is where the risk lies. The required lump sum (e.g., $595,000) is a projection of how much capital is needed at age 67 to fund that annual spending until average life expectancy (historically around age 85, though this is often reviewed).
This figure is an estimate built on several long-term assumptions about the next 20 to 30 years:
- Longevity Risk: The biggest issue is living longer. If you have good genes and good health (which is more likely for those who can afford a comfortable retirement), living into your late 80s or 90s could see your capital run out.
- Variable Returns & Inflation: The calculation relies on assumptions about future investment returns (e.g., 6.0% net) and how inflation will affect the Age Pension. Even minor long-term deviations can cause a significant shortfall. ASFA has had to increase its lump sum targets in the past—including a notable jump in 2023—to account for these changing economic factors.
- Unforeseen Costs: Some medical conditions may result in higher-than-average out-of-pocket medical and pharmaceutical costs, which the average budget may not cover.
The Great Debate: Aspirational vs. Reality-Based Targets
The debate over “how much is enough” has led to alternative benchmarks that challenge ASFA’s aspirational approach:
Standard |
Focus |
Lump Sum Target (Single Homeowner, Age 67/65) |
|---|---|---|
ASFA Comfortable |
An Aspirational lifestyle, higher than most Australians achieve while working. |
$595,000 |
Super Consumers Australia (SCA) Medium |
A Reality-Based target reflecting the actual spending of most middle-income retirees. |
$421,000 (Age 65) |
Consumer groups, like SCA, argue that ASFA’s high targets scare people into thinking they’ll never save enough, which can lead to unnecessary underspending in retirement. Their lower, medium targets are based on the reality that most people adapt and spend less in retirement than they did while working.
Your Action Plan: How to Mitigate the Risk
To avoid the risk of falling short, especially as you approach retirement (at age 56, with a significant super balance):
- Don’t Fixate on the Lump Sum: The lump sum is a moving target. Instead of focusing on the $595,000 number, focus on your annual income stream and how long it needs to last.
- Model to 100: Given your age and healthy lifestyle, model your retirement income to last until at least age 95, or even 100. This directly counters the longevity risk inherent in the ASFA model.
- Stress-Test Your Budget: Use the ASFA Detailed Budget Breakdown, but add personal high-cost factors. Consider including a realistic annual budget line for medical co-payments, specialist fees, and potential in-home care services that might be required later.
- Embrace Guaranteed Income Products: Consider moving a portion of your super into a lifetime income stream product (like an annuity or lifetime pension). These products, which are becoming more prevalent, provide an income stream guaranteed for life, which can deliver higher confidence and protect against the risk of running out of money, even if you live to 100.
By stress-testing the assumptions, tailoring the budget to your health and goals, and focusing on longevity, you can confidently navigate the retirement landscape.