Simple Certainty | The age-old question: How much do I need to retire?

It’s the most common question asked of financial advisers, and with good reason. While it may not have a one-size-fits-all answer, the fact that you’re even wondering how much you need to retire is a great step in the right direction. The perfect retirement (for you) doesn’t happen by accident; it takes planning and effort, so thinking about it now is a good sign.

As we’ve already alluded to, how much you need to retire depends on your circumstances. You’ll be glad to hear, though, that most people tend to think they need more than they actually do.

To get an idea of the amount you need to have saved before the clock strikes five on your last day of work, you need to ask yourself certain questions.

What you need to consider when deciding how much you need to retire

Answering the following questions will go a long way to helping you figure out what size nest egg you’ll need to realise the retirement of your dreams. Let’s dive in.

At what age do you want to retire?

This question has two considerations. Firstly, how many money-earning years do you have left? Secondly, based off average life expectancy, how many years does your retirement fund need to last?

What type of lifestyle do you want to have?

Do you want to go on annual trips? A trip every two years? How often do you plan on upgrading the car? What hobbies will need to be funded? What memberships might need to be factored in?

What other plans do you have financially?

In other words, will you be helping out the kids during your retirement? Do you want to be able to donate to charities?

As you can see, these questions will help your needs and goals take shape. It’s only once you get a good handle on the specifics of your retirement objectives that you can drill down into an amount that’s right for you.

The case study

Case studies are a great way to help people understand the major factors involved in figuring out how much they need to retire, so let’s take a look at one now.

We have a couple looking to retire at 60. During their retirement years, they expect to have:

  • Living expenses totalling $100,000 per annum, indexed by CPI.
  • An annual holiday for 10 years up to age 70, at a cost of $25,000 each year, CPI-indexed.
  • An update to the car after 10 years (at age 70) at a cost of $50,000 in today’s dollars.
  • Retirement savings held within superannuation, with a net earning rate of 7% per annum.

Here’s what this couple’s nest egg looks like during their retirement years:

As you can see, our hypothetical couple would need $2,100,000 saved by the age of 60 to see them through to the average life expectancy, plus five years.

You’ve probably noted that this case study doesn’t leave room for an inheritance if there are kids involved. The assumption is, however, that there will still be the family home to pass on.

This example is designed to get you thinking about the key factors at play when deciding on a sum of money that can see you realise the retirement you want. This, of course, is only the first step. The second step involves sitting down with a financial adviser and going over your current situation to see if you’re on the right track.

If you’re not, there’s no need to panic. Thinking about these important factors now gives us a chance to correct your trajectory so that your ideal retirement doesn’t remain a dream.

So, how much do you need to retire?


Please note this is general information only and you should always seek your own personal

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