How much do I need to retire?

Most of us look forward to stopping work and living the holiday lifestyle. “Retirement” gives us the freedom to do the things we’ve always dreamed of doing, but to achieve this goal will require a bit of planning because, thanks to modern health care, we’re living longer.

Statistics from the Government Actuary show that a 60-year-old woman can expect on average to live to age 86 and a 60-year-old man to 82 years. Of course, some people will die earlier and some will live longer - but depending on when you stop work you may have to support yourself for another 20 or more years!

We can help you develop a personal retirement plan, but here are some simple rules of thumb to get you thinking.

How much capital will I need?

Let’s say you want to retire on $50,000 per annum for the rest of your life. You want your income to keep up with inflation and you want to pass your capital on to your kids when you die.

Assume inflation will be about 3% pa and your investments will earn 6% pa on average over the long term. This means the “real” return is 3% pa. Taking inflation into account means you will retain the purchasing power of your dollar, ie. you will still be able to buy a loaf of bread in 20 years!

To work out how much capital you need, divide $50,000 by the real rate of return of 5%. On your calculator this is $50,000 divided by .05 giving $1,666,666. In short, this means you need more than one and a half million dollars. Obviously this quick calculation doesn’t take income tax into account and there are many strategies and entitlements to tax offsets that can reduce the tax you pay on your $50,000 pa.

We use computer software to enable us to look at different possible retirement scenarios, which enables us to look at different outcomes using your specific situation, objectives and risk and return profile.

The next question is what to do if you need more savings before you can retire. Before you start to panic, talk to us for assistance to guide you through the whole process.