I don’t know about you, but $80,000 per year sounds like a pretty good number to retire on, doesn’t it? Enough for a comfortable retirement and regular travel to interesting places.
So, how much do you need to retire on $80,000 a year in today’s dollars? Well, there’s a few answers, so let’s find out which answer is right for you.
How Much Do I Need to Retire on $80,000 a Year?
The amount that you need to retire on $80,000 a year depends on a number of factors, including:
- The age you would like to retire;
- The number of years you would like to cover retirement expenses;
- Investment returns;
- Whether you are single or a couple; and
- If you are a home owner or non-homeowner.
I’m going to explain why each of these things matter and then show you how much you need to retire on $80,000 based on some assumptions.
Why Does My Retirement Age Matter?
The amount you need to retire on $80,000 depends on the age you retire for two reasons. Firstly, the earlier you retire, the less you are saving towards retirement, through employer contributions and/or surplus income building up your retirement wealth.
Secondly, the further away you are from age 67, the longer you will be more reliant solely on your own superannuation before becoming potentially eligible for Age Pension entitlements, which can supplement your retirement income needs and preserve more of your own savings.
Related Article: How Much Super Do I Need to Retire at 60?
Why Do My Retirement Years Matter?
The amount you need to retire on $80,000 per year is influenced by the number of years you would like to cover your retirement expenses. This is because you will obviously need more to provide you with a retirement income for 25 years compared to 35 years.
For example, a lower sum would be needed to cover retirement expenses from age 65 until age 90, compared to age 60 until age 100. Therefore, you need to consider what age you would like to cover retirement expenses until.
Why Does My Investment Return Matter?
The long-term average investment return achieved on your superannuation and investments impacts how much you need in order to retire on $80,000 per year. The reason for this is because a higher investment return will mean your drawdowns to cover living expenses will be made up of a higher portion of investment earnings (and less return of capital) compared to a lower investment return.
However, with increased returns generally come increased risk and less certainty of outcome, and vice versa. Ideally, you should only be taking on as much investment risk as is required to meet your objectives.
Related Article: Which Super Investment Option Should I Choose?
Why Does it Matter Whether I Am Single or a Couple?
Hang on, $80,000 is $80,000, isn’t it? Why does it matter whether I have a partner or not?
The reason why your relationship status will impact how much you need to retire on $80,000 a year is because a couple will be eligible for more Age Pension entitlements compared to a single person and will likely be eligible for those benefits sooner.
Keep in mind that, even if you are not eligible for Age Pension payments immediately upon attaining Age Pension age (67), it’s likely there will be some point that you do become eligible. The Asset and Income Test thresholds are more generous for a couple than for a single person, because a couple needs to feed two mouths; whereas a single only needs to feed one.
Why Does it Matter If I’m a Homeowner or Non-Homeowner?
The minimum and maximum Centrelink Assets Test thresholds increase if you are a non-homeowner compared to a homeowner. That is, you are permitted to have a higher level of assets as a non-homeowner, yet receive the same Age Pension payments.
The logic behind this is that you will need a greater amount of funds to cover rent costs compared to a homeowner and a homeowner has the added benefit of not having their home assessed for Centrelink purposes. So, even though a homeowner and a non-homeowner might both be targeting a retirement income of $80,000 a year (inclusive of housing costs), a non-homeowner will need a lower super balance because they will receive higher Age Pension payments.
Related Article: How Much Can You Have and Still Get the Pension?
The Amount Needed to Retire on $80,000 a year
Now that we have covered all of the areas that dictate how much you need to retire, let’s find out how much you need to retire, based on your specific circumstances.
So that we don’t get too crazy with the variables, we’re going to assume a net average long-term investment earnings rate of 6.50% p.a., which would widely be considered neither aggressive nor conservative, but somewhere in between. Plus, we’re going to assume that you would like to cover retirement expenses for a period of 30 years.
Overall, you’ll notice that there is not a significant difference in the capital required to achieve retirement expenses of $80,000 per year, until we compare homeowner vs non-homeowner couples. The reason for this is because $80,000 per year income is reasonably high and the Age Pension is not a major factor during the early years.
Had we been comparing an income of $60,000 p.a. for example, which would require a much lower capital sum, the amounts needed under each scenario would be noticeably different.
How Much Does a Single Person Need to Retire on $80,000 a year?
The amount a single person needs to retire on $80,000 a year is based on what age you retire and whether you are a homeowner or non-homeowner. Although, because quite a large balance is required to fund an $80,000 per year income, there is no difference in the capital required to retire at 60 for 30 years or 65 for 30 years, because Age Pension eligibility doesn’t kick in until at least 5 years after retirement anyway.
A single homeowner needs $1.45M to retire on $80,000 a year at age 60 or age 65 and receive that level of income (indexed with inflation) for 30 years.
A single non-homeowner needs $1.25M to retire on $80,000 a year at age 60 or age 65 and receive that level of income (indexed with inflation) for 30 years.
|$80,000 Per Year||Super Balance to Retire at 60||Super Balance to Retire at 65|
How Much Does a Couple Need to Retire on $80,000 a year?
A homeowner couple needs $1.45M to retire on $80,000 a year at age 60 or age 65 and receive that level of income (indexed with inflation) for 30 years.
A non-homeowner couple needs $975,000 to retire on $80,000 a year at age 60 or $800,000 to retire at age 65 and receive that level of income (indexed with inflation) for 30 years.
|$80,000 Per Year||Combined Super Balance to Retire at 60||Combined Super Balance to Retire at 65|
When is the Best Time to Retire?
The best time to retire is whenever you like, provided you have adequate funds to meet your retirement income needs. Lower income needs require less capital and higher income needs require more capital. How much do you need?
Imagine waking up tomorrow morning and every morning after that deciding how you want to spend the day. Well, my guess is, you’re closer than you think. Every day, we provide advice to people who thought they had to work at least another few years before retiring, until we showed them they didn’t have to. Don’t let your best years go to waste.
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.
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