The most common question I receive from those nearing retirement is “How much do I need to retire”.
What do they really mean when they ask this? From years of experience I have come to learn that when asked the ‘How much do I need” question people really mean how much do I need to be able to maintain my current standard of living.
Most Australians also want to leave their children something in their estates. This needs to be factored into our planning and figures show that the income required by a retired couple after tax is approximately $55,000 per annum. Obviously less if you are single.
From my experience this amount isn’t exactly what most Australians would have in mind.
So how do you determine how much is enough? Firstly, work out the level of income you will need to meet your lifestyle expectations and estimate how long you think you might live.
Make sure to factor in the investment returns you expect to receive and get some help with this as these will depend on your tolerance for risk and the types of investments you intend to hold both in the lead up to and once in retirement. The lower the investment return you can generate the more capital you will need to retire on.
Ask yourself whether you want to work part time once retired as this will have a big impact on the amount you may need to fund your overall retirement. A general rule of thumb is that, for a comfortable retirement, you will probably require around two thirds of your pre-retirement income e.g. if your pre-retirement income is $120K per annum you will need around $75K once retired.
What impact does an age pension have? It is amazing how many people we talk to who assume they cannot access an age pension because they are drawing $50,000 plus form their superannuation in retirement. This is often not the case and you can own substantial assets and still qualify for a part pension. Excluding your own home a couple can have just over $1 million in assessable assets and still potentially qualify for a very small age pension.
Accessing the age pension means you can minimise the amount you need to draw form your own investments to fund your lifestyle thus reducing the amount of capital you need in retirement
Don’t leave too long to plan – the longer you can give yourself to plan and save the more comfortable your retirement will be.
Knight Financial Advisors Pty Ltd is a Corporate Authorised Representative of Sentry Wealth Management Pty Ltd (AFSL 227 748) ABN 77 103 642 888. The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.