For most people the major goal of wealth creation is to reach the point of financial independence. That point is when you have enough net wealth that you can choose to never work again and you will be able to meet your lifestyle expenses. (Commonly this is referred to as retirement but the future seems to be that people will choose to continue working past the point of financial independence.)
One of the most common questions I am asked is “how much net wealth do I need to retire?” The answer to that question is very dependant on the lifestyle you plan to lead in retirement. If you are unsure how to define that lifestyle then one place to start is by looking at what current retirees spend in retirement.
Today, Westpac and ASFA (The Association of Superannuation Funds of Australia Ltd) released their latest Retirement Standard research. (Link to the research). The average retired Australian couple spends just under $50,000 per year in retirement to live a comfortable lifestyle. This assumes that they own their own home, and includes some travel but is certainly not a lavish lifestyle.
It is worth paying attention to such research of actual expenditure. Most clients I see guess they will spend lower than that amount. Yet when they actually describe their planned retirement lifestyle and then cost that lifestyle it is significantly higher than the “comfortable lifestyle” definition used in the research.
So whilst current retirees are living off that amount my guess is they do that partly by necessity and partly because they grew up in a different generation with different ambitions. Later generations appear to have much higher expectations. If that includes you then you will need to start planning early or be prepared to lower your lifestyle expectations.