Can I afford to retire?

It’s the most common question asked by new clients, and the burning issue for many pre-retirees.

Many figures are bandied about, and it’s common to hear that we need more than $1m in super to retire in comfort.

How much is enough?

Thankfully, for most mere mortals, a nest egg of well under $1m will suffice. According to the Association of Superannuation Funds of Australia’s ‘Retirement Standard’, to have a comfortable retirement, single people will need $545,000 in retirement savings, and couples will need $640,000.

See more at: SuperGuru – How much super will I need?

These figures have been modelled on the basis that you would spend your nest egg gradually over your lifetime and would claim a part Age Pension to supplement your income.

In our experience, we agree that lump sums in the order of the amounts suggested would be sufficient for many people to live comfortably, but we would also caution that everyone is different, and we have many clients living comfortably on smaller lump sums, and others quite easily finding ways to spend much more.

How comfortable will I be?

Not everyone will be satisfied with the lifestyle modelled in the ASFA’s Retirement Standard which, for example, assumes a very modest level of travel – an area that many of our clients budget more on – particularly in the early years of retirement.

And what of your investment strategy? A more aggressive retiree might expect to generate higher average returns on their nest egg than their more cautious counterpart. If you want to be conservative in retirement, you’re going to need a larger starting balance if you want to go the distance.

Won’t Centrelink come to the party?

From January 2017 a homeowner couple with a nest egg of $375,000 can receive around $34,000pa Age Pension – but for every $10,000 of extra assets they will lose $780pa (until they are completely cut off at around $830,000).

This means that retirees with more assets will have to self fund a larger portion of their retirement – particularly in the early years.

The great news is that good quality financial advice will address all of these issues and more. A customised plan for your retirement should always model how long your nest egg is expected to last, given your personal financial requirements, tolerance to investment risk, and Centrelink entitlements.

For more information on retirement planning, or to discuss your personal circumstances, please call.