A question we get almost everyday from clients is ‘How much money do I need in retirement?’
It’s a complicated question, with a complicated answer—so we'll try to answer it as comprehensively as we can.
So let's take a deep dive into how to start planning for retirement, so you can determine how much money you need to enjoy it to its fullest.
Liston Newton Advisory can help you start planning for your retirement now. Get in touch with us to book a free strategy session, and give yourself peace of mind that your future is in good hands.
How do I start planning for my retirement?
Retirement looks different for everyone, and we’re all managing our own varied financial needs. Here’s how to begin working out how much money you need in retirement in order to live the lifestyle you’ve dreamed of.
Assess the lifestyle you want
It’s only natural that we become accustomed to the lives we make for ourselves. So when you’re looking towards retirement, the first thing to determine is what type of lifestyle you want to live. Answering this question will direct how, and when, you retire.
Look at your interests, and your hobbies. Do you want to spend money freely? Are you looking to take advantage of travelling again? Maybe you’re looking at finally buying that dream home by the coast.
To work this out, you need to determine how much you’ll likely spend each year of your retirement.
So how much are you looking at spending annually in retirement? Is it a modest $50,000? $100,000? As high as $200,000 per annum?
There’s no right or wrong answer here — it just depends on the lifestyle you want.
A good rule of thumb is to budget spending 70–80% of what you currently spend now. For example, if you make $100,000 now in the lead-up to retirement, a budget of $80,000 per year in retirement will provide a comfortable retirement budget.
How do you plan on spending your money?
There is no one way to spend your money when you retire. You’ve worked hard to earn this, and it’s now the point that you can enjoy it.
But the plans you make once you retire will have an impact on how much you need once you reach retirement.
You may spend more in the early part of retirement
We find that many people tend to spend more in the first decade of their retirement. And it’s no surprise: you’ve got the time and money to do so. It might be a big international trip, or spending money doing all the things you’ve wanted to do, but just never had the time for.
We often find that spending is much greater between the ages of 65 to 75, and then reduces after this period.
So if you do plan on enjoying the fruits of your labour, just be aware of how you’re spending your money. We’re not going to tell you what to do with your money—but just make sure you’ve got a plan in place following those first 10 years.
Planning your life in the later years
It’s not as exciting as planning a big holiday, but planning for your later years is just as important.
How are you considering spending your time? Are you the type to opt for aged care living? Or do you think you’ll prefer an assisted living arrangement?
Keeping these in mind means you may need to set aside a deposit for aged care home services, or an in-home support practitioner for around the house. So it’s smart to build this figure into your retirement sum.
Will you pass on money?
This is another important question to ask yourself. Do you plan to spend all your money, or are you considering leaving a certain amount for family and friends, once you pass?
If you plan on doing so, this will affect the amount of money you’ll need in retirement.
When should I retire?
This is another big question we get asked, and one that has a large impact on the amount of money you’ll have saved away when you do retire.
The important thing to be aware of is that, again, there’s no right or wrong answer here. Retirement is what you make it, so the only parameters you’re working within are really how much money you have when you start yours.
Retirement doesn’t have to be one monolithic event, either. Some people never retire: instead, they achieve financial freedom, and are then able to choose when and if they work. Many take up consulting roles, or undertake self-motivated work to continue to earn an income, while reducing the amount of time they spend working.
Retirement is such a personal thing. As financial advisors we can undertake the calculations and provide guidance on how to manage it—but when you retire is up to you.
How long will I be retired for?
How long you have to enjoy your retirement mostly depends on when you retire, and critical variables like your health.
On average, a typical man can expect to live until around 81 years old, give or take. A typical woman can expect to live until around 85 years old.
So if you retire at an average of 65 years old, you can expect to live a good 20 years in retirement. And given the continued improvements in medicine and healthcare, our life expectancies are only going to increase. As such, it’s best to plan to be retired for at least 30-35 years.
How can I maximise the amount of money I have in retirement?
When it comes to making the most of the money you have in retirement, there are a few key things that can make a big difference.
Where to hold your assets: inside or outside of super?
Where and how you hold your assets in your super account will have a significant impact on the retirement income you can access. When planned in the right way, you should be able to stop paying tax on your income altogether. This includes capital gains tax too.
So be sure to speak with your tax adviser to determine the most tax-effective way to structure your assets. They can ensure you optimise your holdings, so you can minimise the amount of tax you pay on your retirement income.
Pay down your debts
Paying down any debt now is a proven way to maximise the money you have to spend in your retirement. Debts like mortgages, credit card debts, or loans, work to eat away at your income. Not to mention the mental load of carrying these debts.
So when planning your retirement, look at your existing debts. Based on your current repayment plans, how old will you be once these debts are paid off? Is there potential to pay them off sooner? After all, the sooner you pay down debt, the less interest you’re paying—and the more financial freedom you’ll enjoy.
How much money you’ll need in retirement
So here it is. Let’s assume you’ve done the proper planning. You’re sensible with your money, and you’re debt-free. You’ve got the majority of your investments in your super account.
Based on these assumptions, Accurium has created a guide to the approximate amount of assets a typical couple will need when you retire, to live at your desired income. This is based on an 80% confidence that you’re not going to run out of money.
I want to spend $60,000 a year in retirement
- To retire at 60: $944,000
- To retire at 65: $702,000
- To retire at 70: $543,000
I want to spend $70,000 a year in retirement
- To retire at 60: $1,309,000
- To retire at 65: $1,099,000
- To retire at 70: $868,000
I want to spend $100,000 a year in retirement
- To retire at 60: $2,149,000
- To retire at 65: $1,886,000
- To retire at 70: $1,591,000
Bear in mind this is just an approximate figure. There are other variables that can change the amount of money you have in retirement, that are important to be aware of. These include:
- What you’re invested in. For example, if all your money is invested in cash, you’re likely to run out of money quicker. If you’re invested in risky assets, you have the potential to lose money.
- Will you have any lump-sum expenses? So things like buying a new house, or a new asset like a boat or car.
- How will the investment market perform over the next 30 years? This isn’t something you can predict with much accuracy, so it’s important to get professional advice.
The final word
Planning for your retirement is a complicated process, and the question, ‘How much money do I need in retirement?’ is a complicated one to answer.
The best way to be prepared for a comfortable and enjoyable retirement is to get help from a professional as soon as possible. They can help you take stock of your current situation, determine your retirement plans, and help you manage your finances in a way that enables you to achieve this.
And when you choose the right financial advice partner, they’ll be there by your side, providing ongoing advice as your situation changes each year.