When is enough and how much is enough for retirement?
We all know that the longer we work, the more we can save and the more we will have in retirement, but when do we pull the pin and enjoy retirement, before it’s too late?
How Much is Enough for Retirement?
The amount you need for retirement is based on your age, whether you are single or a couple and your desired level of income throughout retirement.
Knowing whether or not you have saved enough for retirement is ultimately up to your retirement objectives and the capital amount required to fund those objectives.
8 Considerations for Having Enough Money to Retire
There are a number of considerations that will allow you to calculate when you will have enough for retirement.
Even if you don’t know where to start, the important thing is to just get started. Get some rough dates and ballpark figures down on paper and then refine them over time.
Detailed below are 8 considerations that you should take into account when deciding how much money is enough to retire on and where you will get your retirement income from.
1. Retirement Date
Your retirement date is the first step in determining your retirement plan. In an ideal world, when would you like to retire? Is it now, is it at the end of the year, in 3 years’ time, or in 5 years’?
Write down your intended retirement date.
Congratulations, you’ve just taken the first step in building your retirement plan and knowing whether or not you’ve saved enough for retirement.
2. Retirement Income
How much income do you think you’ll need in retirement? Your expenses in retirement might be different to what they are now. There will be some costs that you will no longer incur and others that you will.
Either way, in figuring out how much money you need to retire, you will need to know the level of expenses that need to be covered. This budget planner can help you calculate your expenses in retirement.
Another expense that you should take into account is tax. If you own assets in your personal name that are producing an income, then this income will be assessed for tax at your individual tax rate. Whereas income from a superannuation income stream could be received tax-free. Check out this video to see when you will be able to access your super tax -free.
Whether it be overseas or interstate, travel is usually high on the retirement bucket list. How much would you expect to spend on travel each year? Are there places you would like to visit that you haven’t yet? Are there regular family visits that you intend on making? Either way, travel is most certainly a consideration when preparing your retirement plan and calculating whether you have enough for retirement.
4. Cars, Caravans, Debt and Renos
In the first few years of retirement, there are generally more capital expenses incurred than any other year. Retirement often signifies access to super, which provides the funds necessary to upgrade that car of yours, purchase that caravan, pay off residual debt or finally get around to those renovations.
Whatever it may be, capital expenses need to be considered to ensure you’re saving enough towards retirement.
5. Gifts / Inheritance
Do you have children or other relatives that you plan on gifting money to now or in the future? Would you like to leave a financial legacy to your loved ones? If so, you will need to save more to account for this.
What about a receipt of an inheritance? Do you have parents or relatives that may leave an inheritance to you? If so, when would that likely occur? You might want to err on the side of caution and not account for an inheritance, but if you don’t and an inheritance is highly likely, you might find yourself working longer than you otherwise needed to and potentially missing out on some of your best retirement years.
Each year, the cost of living usually increases at an average rate of 2-3% p.a. So, you can imagine the increases in the cost of living over 30 years of retirement. Therefore, this is obviously a very important factor when planning your retirement, because despite your investments earning an average of, say, 6% p.a.; in real terms (after inflation) they are only earning around 3% p.a.
7. Investment Earnings
Speaking of investment earnings, understanding what your retirement portfolio is earning or is intended to earn will play a major part in calculating whether or not you have saved enough for retirement.
For instance, a conservative portfolio might earn a gross average long-term return of 3-4% p.a. whereas an aggressive portfolio could earn 8-9% p.a. Obviously this will influence the amount that needs to be saved for retirement.
However, just because a more aggressive portfolio can provide much higher returns, it doesn’t mean that it will. An aggressive portfolio will provide a lower certainty of outcome and greater fluctuations in your balance over the short-medium term, which you need to be comfortable with. Conversely, a conservative portfolio is likely to produce lower returns, but will have a higher certainty of outcome and lower volatility – but you might need to save more for retirement for this level of comfort.
8. Age Pension
For most people, the Age Pension will play a part in funding retirement. Even if you are not eligible for Age Pension payments immediately, there may be a point in the future when you do become eligible. There are also ways to structure your income and assets so that you become eligible for more, sooner.
Failing to consider potential Age Pension entitlements into your retirement plan could result in you working longer or settling for a lower retirement income, or both.
Retirement is meant to be enjoyable – don’t be overly cautious in your retirement calculations. In our experience, the large majority of people we advise can retire much sooner than they think – and usually, immediately – they just don’t know it.
Well, there you have it – 8 considerations to having enough money to retire. Now that you have all the pieces to the puzzle. It’s time to put it all together.
Here is a calculator you can use to calculate your retirement outcome. However, it’s very important to understand that calculators such as this are very basic and should be used as a guide only. These calculators are by no means comparable with receiving personal advice.
Nothing beats personal advice and not only will the adviser provide you with a personalised retirement plan, but the benefits of their advice will always cover the cost of obtaining it, so that your retirement plan essentially comes at no cost. If you do not already have a trusted adviser, 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.
What Is a Good Amount of Money To Retire?
The average Australian will retire with a superannuation balance of around $360,000. However, a good amount for you to retire with really depends on:
- Whether you’re single or a member of a couple;
- Whether you are a homeowner or non-homeowner;
- Whether you would like a comfortable retirement, a modest retirement, or a lavish retirement; and
- Whether you would like to retire at 55, 60, 65 or some other age.
Frequently Asked Questions
Here are some frequently asked questions about how much is enough for retirement and whether you’ll have enough to retire.
Can I Retire at 60 with $500k?
Yes, you can retire at 60 with $500,000. This would allow a couple to cover expenses of around $52,000 p.a. throughout retirement and would allow a single person to cover expenses of $42,000 p.a. throughout retirement, until age 95.
Can I Retire at 65 with $500k?
Yes, you can retire at 65 with $500,000. This would allow a couple to cover expenses of around $63,000 p.a. throughout retirement and would allow a single person to cover expenses of $48,000 p.a. throughout retirement, until age 95.
How Much is Enough to Retire at 55?
Around $1.1M would be enough for a couple to retire at age 55, which would provide a comfortable retirement income of $68,000 p.a. A single person would need $875,000 to have enough to retire at 55 to provide a comfortable retirement income of $50,000 p.a.
For a modest retirement income, around $475,000 would be enough for a couple to retire at 55 and cover retirement expenses of $44,000 p.a. A single person would need $400,000 to have enough to retire at 55 to provide a comfortable retirement income of $31,000 p.a.
How Long Will $2 Million Last in Retirement?
In retirement, $2 Million will last until age 95 if you were to retire at age 60 and cover retirement expenses of $100,000 p.a. Or, you could cover retirement expenses of $115,000 p.a. If you were to retire at age 65.
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