Can You Retire on $500K in Australia? Is It Enough?

Can You Retire on 500k

A super balance of $500,000 at retirement is fairly common. Maybe you don’t have $500,000 in super, but you have other assets outside of super that add-up to $500,000. But, is it enough to retire on?

Can You Retire on $500k?

You can retire on $500,000 in Australia. The amount of retirement income that you can receive each year from retiring on $500,000 will depend on:

  • The age you retire;
  • How you invest the $500,000 and the investment earnings received; and
  • Whether you are single or a member of a couple (for Age Pension purposes).

Let’s delve into the specifics of when and how you can retire on $500,000.

At What Age Can I Retire With $500k?

You can retire at any age with $500,000; however the sooner you retire, the longer you will need the $500,000 to last, which will therefore translate into a lower annual income.

In saying that, if you only want to live on the income generated from $500,000 and retain the capital, you can generally bank on an income of around 3-4% p.a. increasing with inflation for the remainder of your life.

What I mean by this is that $500,000 could provide an income of around $15,000 – $20,000 per year and, if invested appropriately, the $500,000 could increase in value by around 3% per year.

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This ensures that your income keeps pace with inflation each year and the capital of $500,000 (in today’s dollars) will still be there on the day you die.

Although you can retire at any age, most people in Australia will retire somewhere between the ages of 55 and 65, however the retirement income you can achieve may be vastly different depending on when you do.

For example, let’s take a look at the differences in retirement income based on retiring with $500,000 at 55, 60 and 65 assuming an investment return of 6% p.a., inflation of 3% p.a. and eligibility for the Age Pension.

Can I Retire at 55 With $500k?

You can retire at 55 with $500,000 and this will provide you with an annual income of $36,000 (increasing with inflation) until age 95 if you are single, and $43,000 until age 95 if you are a couple.

The charts below illustrate your investment balance over time.

Investment Balance Over Time 55

You should be mindful that you cannot access your superannuation until age 60. Therefore, if you plan on retiring at age 55, you will need to invest 5 years’ worth of income outside of superannuation to get you through to age 60.

Can I Retire at 60 With $500k?

The benefit of waiting until age 60 to retire is that you have access to your super and all income and investment earnings can be received tax-free if held within a superannuation income stream. Furthermore, once you attain age 67, you could be eligible for Age Pension payments, which will supplement your income and mean you are less reliant on your own investments.

You can retire at 60 with $500,000 and this will provide you with an annual income of $43,000 (increasing with inflation) until age 95 if you are single, and $52,000 until age 95 if you are a couple.

The charts below illustrate your investment balance over time.

Can I Retire at 65 with $500k?

Retiring at age 65 on $500,000 provides you with an even higher retirement income, because you are only two years away from being eligible for Age Pension payments, which will supplement your retirement income and mean less of your superannuation needs to be drawn down on to meet expenses.

You can retire at 65 with $500,000 and this will provide you with an annual income of $51,000 (increasing with inflation) until age 95 if you are single, and $64,000 until age 95 if you are a couple.

The charts below illustrate your investment balance over time.

To put all of this into context, research concludes that the income required for a modest retirement income and a comfortable retirement income is as follows:

Modest LifestyleComfortable Lifestyle
SingleCoupleSingleCouple
Expenses per year$31,867$45,947$50,207$70,806

Related Article: How Much Super Do I Need to Retire?

How to Retire on $500k

The best way to retire on $500,000 is to follow these steps:

  1. Retirement Income Need – First calculate how much income you would need to cover your retirement expenses each year (e.g. $60,000 per year).
  2. Investment Return Required – Once your retirement income amount is known, you can reverse engineer the investment returns required to receive that income (taking into account inflation and the Age Pension). (e.g. 6% p.a.)
  3. Choose Investment Options – Now that you know the return required to meet your income needs, you will then need to find an investment option that has a relatively-high probability of achieving average long-term returns in line with the return required. (e.g. 70% Growth / 30% Defensive super investment option)

The important thing is to ensure that the calculations you complete to determine the returns required are accurate. Because if you get the foundation wrong, the rest will crumble.

The goal is to only take on as much investment risk as is required to meet your income needs – no more, no less.

Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

Read This Next: How Long Will My Money Last in Retirement?

Frequently Asked Questions

Listed below are some frequently asked questions around retiring on $500,000.

Is $500k Enough to Retire On in Australia?

If you are retiring at age 65 and are comfortable with an annual retirement income of around $50,000 (single) or $64,000 (couple,combined), then $500,000 is enough to retire in Australia. If you would like a higher income or to retire sooner (or both!), then you would need more than $500,000.

How Long Will $500k Last in Retirement?

If you retire with $500,000 you can make it last as long as you wish. It all comes down to how high your expenses are in retirement.

At the very least, you could live solely from the income generated from the $500,000 capital, which would mean the capital remains in place indefinitely and will therefore last forever.

How Much Income Does $500k Generate?

If invested, $500,000 will generate income of anywhere between $5,000 and $30,000 depending on how it is invested.

For instance, a bank account paying interest of 1% p.a. will generate income of $5,000 ($500,000 x 1%); whereas a high-dividend share portfolio or rent from a commercial property might deliver a yield of 6% p.a., meaning income of $30,000 ($500,000 x 6%).

How Much Interest Does $500,000 Earn a Month?

If $500,000 was invested in a bank account with an interest rate of 1% p.a. then it would earn $5,000 per year (or $416 per month). If the $500,000 was invested in a term deposit earning 3% p.a. then it would earn $15,000 per year ($1,250 per month).

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