How Much Do You REALLY Need To Retire?

There’s a lot of varying opinion when it comes to the big question of “how much you need to retire”. Some experts will say you need close to a million dollars, some even say 2 million.

The truth is, there really isn’t a “one-size-fits-all” answer because everyone’s wants and needs are different. Things that effect how much you need include:

  1. The age you want to retire
  2. How much income you want in retirement
  3. Your health
  4. The rate of return you assume you will get in retirement
  5. Changes to government legislation including age pension criteria
  6. The economic environment, and more.

With so many variables, it’s easy to see why you really need to get advice that has been tailored specifically to you.

So whilst I cant be overly specific in this article, my hope is to at least give you a rough idea.

So let’s get into the numbers…

Whilst lifestyle can vary significantly from one household to the next, for the purposes of this exercise we are going to assume we are saving for a retirement income of about $1,000 per week for couples and $750 per week for singles.

Why $1,000 and $750? Because in our experience having worked with hundreds of retirees, we believe that these amounts would afford most retirees with a reasonably comfortable lifestyle. It’s by no means a lavish lifestyle, but it can definitely provide a comfortable one. Of course you may want more or less, but this report is a guide only and designed to get you thinking.

The table below will give you a rough idea of how much money you need to provide a retirement income of $52,000 p.a. for a couple ($1,000 per week) and $39,000 p.a. for singles ($750 per week).

Annual living costs Lump Sum Needed at age pension age
Couple $52,000 $350,000
Single $39,000 $250,000

Assumptions used:

  1. Current (2020) age pension qualification rules remain
  2. Applies to people who own their own home.
  3. Assumes you have approximately $25,000 in personal assets such as cars and contents
  4. Assumes you need your capital to last to about age 85.
  5. Figures are in today’s value.
  6. Assumes you retire at age pension age (currently 66 but increasing to 67 for anyone born after 1 Jan 1957). If you want to retire earlier you will obviously need more (see notes below).

If you’re reading this article and your thinking to yourself, “how am I ever going to be able to afford to retire”, keep reading because later on I’m going to show you how you can afford a comfortable retirement with less than $150,000 saved in super.

What if you want to retire before age pension age?

As mentioned, the above numbers apply to people retiring at their qualifying age pension age (currently 66 but increasing to 67 for anyone born after 1 Jan 1957).

If you are wanting to retire younger, then you obviously need more money.

A simple way to work out how much extra money you need is to multiply your annual living costs by the number of years you want to retire before your age pension age.

For example, let’s assume you wanted to retire 5 years prior to age pension age. That means you need an extra 5 years’ worth of income at $52,000 per year. So 5 years multiplied by $52,000 means you need an extra $260,000.

Your total lump needed to generate $52,000 a year would be $260,000 plus the $350,000 from the table above, giving you a total of $610,000.

How do you work out the future value of the lump sum you need?

As we said in the assumptions, the above figures are in todays’ dollars (meaning that they would apply if you were retiring today). But we all know that due to inflation, $350,000 today will not buy you the same stuff as $350,000 in say, 10 years’ time.

So how do you work out the future value of your lump sum.

Rather than trying to give you a course in business statistics, we’re going to show you the easy way.

First, you will need 3 numbers:

  1. The ‘todays value’ lump sum (as worked out above)
  2. The assumed annual inflation rate (such as 3% p.a.), and
  3. In how many years do you want to retire.

Once you have the above three things you can then head over to the following website as a simple way to work out the future value of your retirement lump sum:

To follow on from the example used above, say you have calculated you need a lump sum equal to $350,000 in today’s value, but you won’t reach your retirement age for another 10 years.

So in that example your numbers are:

  1. Today’s value of lump sum ($350,000)
  2. Assumed annual inflation rate (3%)
  3. In how many years do you want to retire (10).

When you take these three numbers and plug them into the calculator on the above website you get a future value of about $470,000.

That means, $350,000 today is the same as $470,331 in 10 years’ time (assuming an inflation rate of 3% p.a.).

Make sense? If not, re-read the above from the start with a pen and pencil in hand and follow through slowly.

What if you want more than $52,000 a year (or $39,000 if you’re single)

You’re probably not going to like this, but if you want to spend more in retirement what you need to do is simple. You either need a bigger nest egg or you need to work longer (or both). If you want more specific numbers, it really is best you get some advice.

One really great strategy for people on an age pension is that Centrelink lets you each person earn $7,800 a year without it effecting your pension. Even if you’re working for minimum wage that’s only one day’s work per week. This could be a great way to increase your income in retirement that most people overlook. There’s also a growing body of research that shows working part-time in retirement can actually make you happier!

Whatever you circumstances, it’s important you give your retirement planning the time it deserves.

In my experience, people who have a plan (no matter how small or simple that plan may be) almost always end up better off than they would have if they had NO plan.

Seeing as you were interested in this article about retirement planning, would you like our help to maximise your retirement income? Click here to learn more about our free initial consultations.

Oh, and I almost forgot, if you want to know how you can enjoy a comfortable retirement with less than $150,000 in super, click here to read the full article.

Important note: this advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided here are general advice only. Please arrange an appointment to seek personal financial and taxation advice prior to acting on this information.

About Invest for Living

At Invest for Living our aim is to help people make better financial decisions and ultimately live a happier life. We aren't controlled by any big institutions so our goal is not to try and sell you a product. Instead we pride ourselves on providing financial advice that makes sense and is easy to understand. It's not always the sexiest approach but in our 30 plus years of experience, financial strategies that have stood the test of time always work out best.
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