How Much Do We Need To Retire?

This is a question we get asked all the time.

Statistic – ‘For a couple aged 65 today there is a 50% chance that one person will still be alive at age 95.  Source ABS.

A sobering thought when you’re working out much you need in the super and investment nest egg to retire.  Generally, people fall into one of two camps when it comes to retirement planning: 1. Those fortunate enough to have built such a large nest egg that it represents up around 20 times their required annual retirement income.  I.e., They want $70,000py and have built up over $1.4mill.  For these few people, their nest egg will grow throughout retirement as they will only spend a portion of the interest earned; 2. The more common scenario is those whose nest egg represents around 15 times their required income.  I.e., They want, say, $60,000 per annum and have around $900,000 built up.  This is most people, and they will be gradually eroding their nest egg to meet their income requirements and will eventually run out of money.

The key to good retirement planning is to do all the smart things to maximize your financial position throughout retirement and try and have your money run out when you think you will run out.  It is no good running out of money in your early 70’s but it’s also no good scrimping and saving, not enjoying your retirement and having heaps left in your 90’s.  

As an example: we recently reviewed a couple’s situation, Jim and Mary (names changed for privacy) decided they wanted $800pw or $41,600py as a pension from their super.    This coupled with part Age Pension entitlements of around $26,000py would get them up to $67,000 odd per year income in retirement to cover living, hobbies and travel in today’s terms.  We projected they were currently on track to build up around $450,000 in super and investments by their preferred retirement age.  As ‘balanced’ investors, expecting 7%pa after fees and costs, this meant their nest egg would run out in around 14 years, after allowing for inflation.  As Jim and Mary were 50, and planning on retiring young at 60, they weren’t comfortable with running out at age 74.  We implemented strategies to put away an extra $1,000pm tax effectively to ensure they built their nest egg up to over $700,000 which should now provide their required income and last them until age 90.

If you’d like a cost and obligation free review of your retirement projections, give us a call.

Written by Justin Butler, Managing Director Eclipse

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