Advice Market Blog

How Much Do I Need to Retire? I’m Not Sure I Will Have Enough

June 24, 2016


You’ve worked hard for the best part of your life and are reaching the stage where it’s time to think about slowing down and enjoying a more comfortable existence. For many people retirement age is meant to be the golden years where you can relax and enjoy all those things you’ve planned for. For many however the prospect of a comfortable retirement is becoming a nightmare. Longer lifespans and more limited government support are making it increasingly difficult to get through the golden years in comfort.

Increasingly the number one concern of those approaching retirement age is “How much do I need to retire?” To answer this question let’s look at two of the key factors.


Income Needs. The level of income you will need in your retirement years will depend on the lifestyle you plan to adopt. Some suggest you should aim for 80% of your pre-retirement income but this depends on the lifestyle you have now and what you plan to do when you reach retirement age. You need to answer a few key questions:

  1. What are your plans during retirement? What travels or hobbies do you have? Do you see yourself travelling the rivers of Europe or holidaying in caravan parks?
  2. Where do you want to live? Sometimes moving to another location can be more expensive or cheaper than your current living costs
  3. Will you own or rent? This will affect your daily living costs and possibly your entitlements
  4. Have you allowed for inflation? None of us know how long we will live for but we need to assume the cost of living will increase as the years roll on

Asset Needs. In order to deliver the income you want in retirement you will need to accumulate assets that will provide you with that income. Here are some key asset questions:

  1. What level of risk are you comfortable with? This will dictate the type of investments you can acquire and how aggressively you will pursue your income goals
  2. What age do you plan to retire? Your remaining years will give you your best chance of building up your assets ahead of retirement age
  3. Will you have debt when you retire? Clearing your mortgage will give you the best chance of maximising your investment returns.
  4. Have you set something aside for contingencies? What if you get ill, become single or contemplate remarriage?


To illustrate let’s work through a hypothetical example.

Bob wants to retire in 15 years’ time. He is single and has annual income of $85000 per annum. He lives a simple life, owns a caravan, and plans to spend his days travelling and fishing around Australia. He has assumed he will be comfortable living on $40,000 per annum at retirement, allowing for inflation. A good rule of thumb for Bob is that he will consume around 4% of his retirement savings each year while he is still alive. On this basis he would need to look at $1.00M in savings ($1M x 4% = $40000) as a guideline. He currently has $300,000 saved so would need to set aside a further $700,000 over the next 15 years. Allowing for a return on his savings and the investments he already has Bob knows he will need to accumulate around $35,000 per annum each year for the next 15 years to build up his retirement fund.

Bob’s goal may seem a difficult task but thanks to good advice Bob is able to make it more manageable by reviewing his lifestyle expenses and by structuring his investments so they not only give him a healthy return but so he can also take advantage of the governments tax incentives regarding superannuation.

This is an extremely simplistic example and doesn’t represent Bob’s reality as there are more variables that need to be considered which is beyond the scope of this article. Bob’s figures are unlikely to represent your own situation and seeking advice from a financial adviser is always important when doing this exercise yourself as you will need to consider the return on your investments, tax considerations and how your assets are structured to name just a few.

Get advice today to help you set up your retirement now before it is too late.

The information provided is intended as a guide only and does not take into consideration your personal situation, needs and objectives and should not be considered as advice of any nature.

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By AdviceMarketeditor