Nearly half of Australians aged 50 to 66 worry they will run out of money in retirement, according to ASIC research from April 2026. That figure sits at 48% — a number that should make anyone planning their later years stop and think. The same research found that only 18% of people in that age bracket have a clear retirement plan. With around 2.5 million Australians expected to retire over the next decade, the gap between worry and preparation is wide. Here’s what you actually need to know.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Those figures paint a clear picture. The comfortable retirement budget for a single homeowner sits at $54,840 per year, while the Age Pension provides $31,223. That leaves a gap of over $23,000 annually that needs to come from somewhere else — super, savings, investments, or property. The ASFA benchmarks suggest a single homeowner needs a lump sum of $630,000 to fund that comfortable retirement, while couples need $730,000. But those numbers assume you own your home outright. If you’re still paying rent or a mortgage, the whole calculation shifts. For a deeper look at how property fits into the picture, you might find our guide on downsizing in retirement useful.
The central concept here is the retirement budget gap — the difference between what you’ll need and what you’ll have.
What I tend to notice is that most people focus on the lump sum number — how much super they have — without thinking about what that money actually needs to do each year. The lump sum is only useful if it generates enough income to cover your spending. And that spending changes over time.
What happens when the budget doesn’t add up
The consequences of underestimating retirement costs aren’t abstract. They show up in real choices. The ASIC research found that 58% of Australians aged 50 to 66 want to learn more about super and retirement, and 46% report low financial literacy and low confidence. That lack of confidence translates into inaction, and inaction compounds.
Consider the numbers. The ASFA comfortable retirement budget for a couple is $77,375 per year. The Age Pension for a couple combined is $47,070. That’s a gap of $30,305 annually. To generate that from super using a conservative 4% withdrawal rate, you’d need roughly $757,000 in super — on top of the $730,000 ASFA already assumes. Many retirees don’t have that. The ASFA modest retirement lump sum for a couple is just $120,000, which would generate around $4,800 per year at 4%. That barely covers the gap for a few years.
Then there’s inflation. Between 2022 and 2024, household costs rose sharply, with the ABS Consumer Price Index peaking at 7.8% annual growth in late 2022. Retirees now face roughly 20% higher spending needs compared to pre-2022 levels. A budget that worked five years ago won’t work today. The categories rising fastest — healthcare, energy, insurance, council rates — are exactly the ones retirees can’t easily cut.
Where retirement budgets go wrong
Most retirement budget mistakes come from assumptions that don’t hold up over a 20- to 30-year retirement. Here are the ones that cause the most trouble.
Underestimating how long retirement will last
Life expectancy now exceeds 85 for many Australians. A retirement starting at 67 could easily run 25 years or more. Planning for 15 years and living 25 leaves a decade unfunded. The ASFA benchmarks assume a retirement of around 30 years, but many people plan for shorter periods without realising it. The difference between a 20-year and 30-year retirement from a $500,000 balance is significant — the shorter timeframe allows roughly $25,000 per year, while the longer one drops to about $16,700 using a simple division approach.
Ignoring the Age Pension means-test
The Age Pension isn’t automatic. Centrelink applies both an income test and an assets test. For a single homeowner, the assets test threshold sits around $321,500 (as of May 2026). Above that, your pension reduces. The deeming rates — which Centrelink uses to assess income from financial assets — increased to 1.25% and 3.25% from March 2026. That means even if your investments earn less, Centrelink assumes they earn at those rates. Many retirees structure their finances without considering how it affects their pension entitlement, leaving money on the table.
Forgetting that spending changes over time
Retirement spending isn’t flat. Early years often involve more travel and activities. Later years bring higher healthcare and aged care costs. The ASFA data shows medical and hospital services rose 4.3% in the latest period, while domestic travel jumped 9.6%. A budget that works at 67 might not work at 77. The federal government allocated $3.7 billion for aged care from October 2026, including new residential care beds and Support at Home packages, but those subsidies don’t cover everything. Planning for a spending curve rather than a flat line makes a real difference.
Overlooking the impact of investment returns
The difference between a 5% and 2% return on a $600,000 balance is about $18,000 per year. That’s more than half the Age Pension for a single person. Many retirees shift to ultra-conservative investments to avoid risk, but that creates a different risk — running out of money because returns are too low. The sweet spot depends on your spending needs and how much Age Pension you receive, but a balanced approach usually works better than going all-cash.
For those navigating complex financial decisions, getting a second opinion can help. Services like JustAnswer Finance connect you with professionals who can answer specific questions about tax, investing, and retirement planning without a full advisory commitment.
Building a retirement budget that actually works
A retirement budget isn’t a one-time calculation. It’s a framework you adjust as circumstances change. Here’s how to build one that holds up.
Start with your income floor
Your income floor is the minimum you need to cover essentials — housing, food, utilities, healthcare, transport. For most retirees, the Age Pension forms the base of this floor. A single person receives $31,223 per year from the pension. If your essential costs are $35,000, you need to find $3,777 from other sources. If they’re $50,000, the gap is $18,777. The ASFA modest retirement budget gives a sense of what essentials look like, but your actual numbers depend on your situation. Work out your essential spending first, then add discretionary spending on top. That way you know what’s negotiable if markets drop or costs rise.
Understand the super and pension relationship
Super and the Age Pension work together, but they interact through the means test. Drawing down super strategically can maximise your pension entitlement. For example, if your super balance is just above the assets test threshold, spending some on home improvements or a new car might reduce your assessable assets and increase your pension. The Division 296 tax, effective from 1 July 2026, adds an extra 15% on earnings from super balances above $3 million, with a second tier at $10 million. For most retirees, this won’t apply, but it’s worth knowing about if your balance is substantial. The concessional contribution cap rises to $32,500 from 1 July 2026, up from $30,000, giving more room for those still working to boost their super.
Plan for the spending curve
Retirement typically has three phases. The active phase (roughly 67–75) involves more travel, hobbies, and social activities. The settled phase (75–85) sees spending stabilise or drop slightly. The care phase (85+) often brings higher healthcare and aged care costs. The ASFA data shows domestic travel up 9.6% and medical services up 4.3%, reflecting these different pressures. A budget that allocates more to the early and late phases, with a dip in the middle, tends to match reality better than a flat annual amount. The $3.7 billion aged care package from October 2026 will help with some costs, but it won’t cover everything, especially for those who need residential care.
Factor in tax efficiency
Super remains the most tax-effective vehicle for retirement savings, with a 15% contributions tax compared to personal rates up to 45%. But once you’re over 60, withdrawals from super are tax-free. That changes the calculus. Investment bonds offer another option — they’re taxed at 30% on earnings, with no personal tax on withdrawals after 10 years. For those with balances above the super caps, they can be useful. Australian shares provide franked dividends with tax credits, which can reduce your tax bill. The key is matching your investment structure to your spending needs and tax situation. The Super Guarantee reaches 12% from 1 July 2026, completing a 30-year phase-in, which means younger workers will build super faster, but current retirees need to work with what they have.
For those considering property as part of their retirement strategy, the downsizer scheme allows up to $300,000 tax-free from selling the family home. But property also comes with ongoing costs — average maintenance runs $8,000–$12,000 annually, and yields are typically 2–3% after costs. It’s worth weighing against other options. Our article on smart asset allocation for retirement covers how different investments fit together.
Frequently asked questions about retirement budgets
Can I retire on the Age Pension alone? ▾
How much super do I need to retire comfortably? ▾
What happens if my super runs out before I die? ▾
How does the Division 296 tax affect retirees? ▾
Should I pay off my mortgage before retiring? ▾
What’s the best withdrawal rate from super? ▾
Your retirement budget is a living document
The numbers in this article — the ASFA benchmarks, the Age Pension rates, the inflation figures — all come from early 2026. They’ll change. The deeming rates will adjust, the assets test thresholds will move, and your personal circumstances will shift. What won’t change is the basic principle: your retirement budget needs to be specific to you, grounded in real costs, and flexible enough to adapt. The 48% of Australians who worry about running out of money aren’t wrong to be concerned, but a clear plan — even an imperfect one — is far better than no plan at all.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read The Travel Myth: Can You Afford to See the World in Retirement?
Sources and Further Reading
Ageing in Place: Aussie Solutions for Independent Living in Retirement — Practical strategies for staying in your home longer and managing the costs that come with it.
The Real Cost of Grey Nomad Life — What the travel lifestyle actually costs and whether the numbers stack up for most retirees.
Wealth Works (2026). Retirement Planning Gap Australia 2026. 🔗
Hudson Financial Planning (2026). Retirement Planning Australia Guide. 🔗
Unless Financial (2026). 2026 Budget Super and Retirement Impact. 🔗
Wealth Lab (2026). How Long My Retirement Savings Will Last. 🔗
