How much do I need to retire?

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 83years. 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 8% pa on average over the long term. This means the “real” return is 5% 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 $1,000,000. In short, this means you need one 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 $50,000pa.

What income can I get if I retire now?

Let’s try it the other way. Say you have accumulated assets of $600,000 and you want to retire now.

This calculation is a bit harder because it depends on when you retire and how long you will live, but the following formula is a useful estimate. It takes into account that if you retire earlier you will need to spread your capital over a longer period.

Age at retirement Income
55 Multiply your capital by 5%
60 Multiply your capital by 6%
65 Multiply your capital by 7%


So if you retired at age 60, your income would be $600,000 times 0.06 (6%) giving $36,000. Deferring your retirement obviously means you have more time to earn an income, more time to let your capital grow and a shorter period to spend it.

Again this doesn’t take tax into account and assumes similar investment returns and inflation levels. It’s rough and ready but will help you see where you stand.

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

Sources: “OECD Health Data 2009: a comparative analysis of 30 countries” “Australian Life Tables 2010-2012” released Nov 2013



The advice on this site may not be suitable to you because it contains general information that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.  Please also refer to our general advice warning under contact us tab on our website.  The article is based on information available at the time of writing only and therefore care should be taken as to the accuracy of the content.
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