How much money do you need to retire, and what variables need to be considered?
Any useful links that can help determine a dollar figure?
Edit*
I have thought that if you have enough money invested, and it pays a sufficient return to cover all living expenses, you can retire at any age.
As long as income sufficiently surpasses expenses.
But I would like to hear about variables that are wise to consider.
Thank you everyone.
Depends which old folks you're talking about. Ex prime ministers get that back 10 fold.
Lucky there only 6 of them.
I own my own house. I need $1000/week (tax-free or after-tax) to retire.
that's awesome. I'm not sure why your comment was voted down.
If your house is paid off, $1000 a week would be comfortable.
Yeah, a $1000 a week is about the sweet spot
This will simulate for you if you had retired in the past, how long your assets would have lasted depending on which year you retired…
https://www.cfiresim.com/
Got to assume that you own your own home
i dare say from there on you would need at least $500-600 a week in passive income
Of course it depends on the life style you want to live
Personally i think if owned my home i could live off $500 p.w easily but i'd want a life style that would require me to probably need a 1k a week income
Retiring very soon. Own my home. Self funded and aiming at an after tax income of $75k. That's $50k tax free from super/retirement income stream and $25k from dividends franked at around 70%.
Just because I have the income doesn't mean I'll spend it all.
There are people on the a few of the FIRE groups I read that say they can do it at $30k/yr. I assume they don't do a lot of paid activities and don't drink alcohol.
yeah $30k a yeah is only $575 a week, you would have to live like a miser and also not live anywhere with high rates or require house maintenance. I suppose a small country town and a life of fishing maybe. Personally I am currently looking at a similar retirement number to you in a couple of years.
I assume they don't do a lot of paid activities and don't drink alcohol.
I assume you have been spending the last 40 years stocking up the vino in the wine cellar though! So no extra expense for you :)
maybe they have. I had a cellar for a while but so many wines these days aren't made to put down for more than a few years. I haven't the room anymore.
Problem today is the way over inflated price of any income returning investments.
Super high preices = very low income returns
Start by purchasing some rental properties then go from there
Do not rely in Superannuation alone
This is only good advice if you have an income to support the investments. I have investment property and given my time over I am not sure I would go this route.
Why is that?
Because it is a hassle, capital gains are not a given, rental returns can be non existent and if you do it on a personal level tax implications and succession planning are unfavorable when you want to realize your gains or pass onto the family. It isn't like a share in Rio Tinto where you buy once and for the past 30 years have just been paid money for effectively no cost.
What serpserpserp said, pretty much.
Problem today is the way over inflated price of any income returning investments.
Start by purchasing some rental properties then go from there
Rental properties in the major capital cities will return you barely nothing after costs (if anything at all).
What is wrong with relying on Super alone? I am sure many people plan their reitrement this way
Very basic rule of thumb for most normal range of income needs is.
17 X income needs at 55
15 X income needs at 60
13 X income needs at 65.
Generally the definition of financial independence is 20 X income needs. At this level a 5% pa return above inflation means that your money lasts forever. So even a 4% pa return above CPI would last approx 41 years. Excluding any age pension you may become entitled to at some point during your life. The issue however is that within the pa living expenses you need to cater for upgrade of lumpy assets such as new kitchen/bathroom/car etc.
a 5% pa return above inflation
I guess if one is funding their retirement with an income stream when over 60 years of age it would be 15 x after tax income.
For example $100,000pa income is about $73,000 after tax.
So if funding from an income stream you would need 15x 73000 not 15x 100000.
Ie. about a million not 1.5 million.
It is your income needs. Almost no one pays tax in retirement. Even ignoring using superannuation income streams (which are tax free over 60. A couple can have nearly $60,000 in combined taxable income and still pay no tax. The living expenses in retirement are almost never meet from pure taxable income. It is usually a combo of income and capital drawings.
Does this have assumption that you have your own home paid off and then you multiply income needs by 13, 15, 17 or 20? Also, what about 45 years of age.. Is 20 X income needs (without your own home) is sufficient?
People live in some idyllic make believe world where they see themselves reclining beside some exotic pool sipping pinacoladas all day long.
I do not smoke. I do not drink. I do not go to restaurants. I only drive occasionally. Yet, on the Pension, I can save $1,000 per month. And I can travel once a year to any destination I choose (within a 4 week window). Whilst on holiday, I drink, and I smoke. I dance, and I sing.
When I return home, I don't drink. I don't smoke.
it's not sad nor aweful. He got to live in a way that is comfortable, and has some luxuries thrown in, for essentially not doing any work. So what if you can't have hookers and cocaine when you retire? Why can't a simple life be just as fulfulling?
Sounds wonderful to me. An awesome holiday once per year sounds like he/she is living the dream.
ozHunterNSW
There's nothing wrong with that lifestyle as long as you feel happy and fulfilled.
Personally, I like theatre ($1500/yr), live music ($1200/yr), yoga ($750/yr), restaurants ($10k/yr), alcohol ($6k/yr), travel ($12k/yr) and a few other lifestyle choices.
It costs me $6k-$10k/yr to live in my PPR that I own plus utilities, NBN, etc $3k .
$2k to have the 13yo car sitting in the garage doing nothing, a bit more if I drive it.
Retirement is about personal choice. None of it is wrong but some of those choices aren't for me and a lot of my choices aren't for others.
Yet, on the Pension, I can save $1,000 per month
Wow you spend $900 a month on all expenses (assuming you get maximum single pension here)? That is fantastic going.
I'm surprised it's possible with travel too, but good on you.
They say the best things in life are free, and it's true there are plenty of good things for free in life - like books from libraries, parks, television, friends etc.. So if ones hobbies happen to fall into the low cost or free categories, then one can I presume have a fulfilling low cost retirement.
One important variable is health imo. One of my relatives recently retired and got diagnosed with cancer. This threw all the budgeting out of the box and she had sold an investment property to keep up with her medical expenses
Coincidentally this article came up last week
https://www.news.com.au/finance/money/costs/almost-one-third…
Realistically a income around 1k a week.
So 1million in a vanguard account?
Or 3 homes in SA making 350 a week (also around 1 million).
You realise its not that hard to retire early if your making over 100k a year.
are you talking net income or gross income a week?
if you're talking net that means you need to earn 65k after expenses a year with likely just over 12k tax or about 1,250 a week, unless you plan to eat up your equity.
From my experience a $1m vanguard account will earn on average 35k Revenue a year, then take off the 5k fees and expenses, ie adviser fees, admin fees. That leaves you with about 30k a year pre tax. to reach 65k you would have to draw an extra 35k a year, to do that Vanguard would have to periodically sell off parts of the asset which makes earning income from it even harder. I would say if you wanted 1k a week you need at least 2mil in a vanguard account. of course this is assuming that is your only income stream.
I think in the scenario above you are probably better to sell 2 of the 3 homes as you need the money. Then keep the last one to live in. Assuming he can't live off the returns.
the major factor has been owning your own home unencumbered (no mortgage - paid off)
our home is unencumbered - so we have no mortgage bills for our home
otherwise, inner Sydney rent for our unit at say $600pw - would add $31200pa to our basic income requirement
food and basic expenses can be minimal - as low as $30pw for food - but we spend upwards of $1-200pw on restaurants - just because we can
lemme see - for our household regular bills - I track - strata levies $3200pa, private health insurance (couple, top hospital only) $3000pa, electricity $1400pa, council rates $1100pa, internet $800pa, water $600pa, contents insurance $200pa = say $10300pa ?
shopping - my credit card statement last month shows - groceries $400, restaurants $200, home $200, shopping $200 = say $1000pm or $12000pa
adding the above suggests our spend is around $22300pa
if we had to pay rent for our inner-city unit we might need $22300+31200 = more like $53500pa
if you want to use 3-5% drawdown on your invested capital sum nest egg,
then that suggests we would need $1-1.8M if we also had to pay the above rent of $600pw
but as we don't need to pay rent, our $22,300pa spend suggests we could live off a nest egg of $446-743K.
but that assumes no age pension - which I don't get because we have enough to not qualify.
if you did get the age pension, I think ex-PM Paul-the-terrible Keating recently suggested $300K should be enough.
to paraphrase Charles Dickens' Micawber -
'Annual income $20,000, annual expenditure $19,975, result happiness.
Annual income $20,000, annual expenditure $20,025, result misery' -
https://en.wikipedia.org/wiki/Wilkins_Micawber
so - spend less than you earn - and things should be alright
thanks for your thoughtful comment.
I saw you noted "food and basic expenses can be minimal - as low as $30pw for food"
I can see it's possible, like eating canned lentils for every meal perhaps.
Or perhaps:
breakfast - rolled oats + Milk,
lunch - bread + cheese + …something else cheap?
dinner - rice, chicken, …broccoli?
But what did you have in mind for $30 a week for food?
you got it - I do have breakfast of rolled oats and milk ! - oats cost about 3 cents, milk might cost 10c, say 15c for breakfast
I brew my own filter coffee - say 20c - to avoid wasting $4 standing in line waiting for a takeaway barista flat white - three times a day
and I do love lentils - they were my staple diet when I batched as a uni student - cook a big pot once a week with different spices and root vegs, portion and freeze for quick reheat stews every night, and a roast meat every Sunday
here's a recipe I'd love to try but haven't got the fresh spices yet - lentil soup - https://www.theguardian.com/food/2021/apr/06/nigel-slater-mi…
otherwise - buy in season - e.g. what fresh vegs/fruit is under $2/kg is usually in season, good and cheap
If I really tried I could probably eat for under $20 a week for food - but I'm no longer a young student
I've got enough money in retirement so can blow $150 on a single meal with friends without a second thought.
renting also removes some of your original costs like strata levies, council rates and home insurance.
how much is your mortgage?
45 million crypto portfolio is what you need.
Rookie numbers. Aim higher.
If you don’t have any expensive hobbies you could retire on less. If you myst holiday twice a year in nice hotels by business class flights then you’ll need more money. If you get feeble in old age and want a robot helper you may need more money. Do you want good dental implants or government funded dentures? State of the art VR or the same crap poor people use? Your own autonomous car or a filthy self driving car from the Uber fleet?
How Much Money Do You Need to Retire
$4.50 for the Myki to get home after work.
What Variables Need to Be Considered?
Discrete variables are my favourite.
this questions reminds me of a comedians response to the question:
I got more than enough money to retire on till I die,
so long as I die next Tuesday.
If you don't want to draw down any of your capital (say, to pass on to your children), then:
How much you need = E / (r - g)
E = average total annual expenditure; r is average long term return you can invest your nest-egg at; g is the average inflation rate
You'll want to have a buffer to tide you over when the market is down for a number of years and the level of income is lower than average, or when you have bigger than expected expenditure (e.g. health situation). You will need a mixture of growth and income assets.
If you are prepared to draw down your capital as well, you'll need to estimate your life expectancy and build in further a longevity buffer. The amount you need will be less than the amount above.
Considerations:
Develop a purpose/interests well before you retire (non-work related) so you don't cark shortly after retiring.
Contributing to society in some form is important for your health and well-being.
If you have young kids, they might never have seen you go to work, so teach them that money doesn't grow on trees, the value of money, etc.
Have an elevator pitch on what you do for a living, when asked at social gathering, by the neighbours, etc.
Trial it first before you do it - e.g. take a career break for couple of years and see how you manage. For example, is E larger than you expected, r, smaller than expected, etc.
The biggest challenge is people's mindset. People are always wanting more and bigger and better things. Always wanting the nicer/bigger house in the better/more affluent suburbs. Drive a nice car, but there's always nicer cars to aspire to.
You have to be happy and content with what you have, and have a clear vision of what makes you happy (i.e. not material goods). Once you have the right mindset, then you can start to work out how much passive income you need to maintain your lifestyle.
I think I will need about 5mil fairly risk free investments to live comfortably at the age of 45. There is a risk of divorce etc to consider too. I want to enjoy retirement and can't stick to a budget.So of course it's not an option to retire early for me. It sucks but that's life.
You're 45 or looking at what you need to retire at 45? I've done my figures on around 4 mil at 48 and it seems pretty reasonable.
wow… 4 million….
Thats quite high, you guys must have expensive lifestyles. My calculations only show ~$2m at age 40.
What if your partner takes ~70% of that?. Would you consider such a risk in your calc?. Divorce rate is very high in this day and age.
It would be so much easier if we can work backwards. Unfortunately we don't know how long we're going to live for. Hopefully I cark it before money runs out.
Like everyone has stated, retiring is different for everyone. You can retire now if you live a frugal life, I've seen those financially independent types where they really do live super frugal, which is fine because it might suit them well, but if you had kids or very close family members alive, just think, if they aren't financially independent or would need your help in the future it might eat into yours.
Also, heh, when I was a kid, the lotto was probably a 1m-3m and it was already a lot of money, and people who won that would have thought yep retirement, maybe they did, and lets hope they did something to the money, otherwise if they were going to do the trusty old into the bank and eat off the interest, don't know how that's going for them now. Times change, and I don't think it's that easy to determine an amount to retire on, especially with inflation thanks to all your governments going overdrive on printing cash.
There are people who quit their job, pack up their bags and travel the world with a few pesos. It is all about controlling your wants against your real desire for freedom - measured in time and choices.
Correct on one count - minimise expenses, etc.
Overlook what happens when travellers get old.
Its Australia, there is a basic social safety (aged pension, social housing, concessional residential facilities, Medicare, and so on) net when one gets old - assuming it will still be available when many of us get to that age though.
Bit sad travelling all the time, then going cold turkey and relying on a safety net.
Don't get me wrong, I enjoy travelling, but have many other interests and have young family who will travel with us when they get older.
@tikei: Exactly - you can do it when you're young, but if you don't save something when you're young, you might be homeless when you're old.
I can retire.
I had saved 40x annual expenses by my late 20s
Now have saved about 180x annual expenses by my early 40s.
Still working.
Nice work. Savings interest rates are really rock bottom.
You must be investing this elsewhere.
I still remember when savings interest rates were at 6%.
The greatest risk is not taking any risk at all.
Take big risks. Manage these risks.
Nice, what risks did you take drfuzzy?
work gives meaning and motivation to most folks
the Chinese Mandarin greeting 'ni mang ma?' (are you busy?) is a reassurance that you're not idle, unemployed and likely to be getting into trouble with criminal activities
busyness as a point of pride - remember that before COVID - rush rush - weren't we all impressed with how important and significant we felt - giving strangers the 'get out of my face creep - can't you see I'm totally busy staring at my small screen !!!'
money comes and money goes - but they say at the end of life no-one ever wished they spent more time at the office - it's always about loved ones, and regrets not for what you did, but for what you didn't do - for your loved ones …
This is very true and I have noticed this is in my family.
Working 80 - 120 hours a week is a badge of pride.
It doesn't matter if these were 40 hours digging holes and 40 hours filling the same holes.
Hard work is all that matters. Productivity and creativity are given zero value. Rest time is zero value.
It annoys me.
But I repeat the same traps I have learned from my parents.
That mindset is a wage slave mindset.
If you can't leverage your money to work for you then the outcome is serfdom.
I don't know how much money you need to retire, however here are some things I do to help me save:
If your super has TPD/Death and Income protection insurance and if you are paying for 'individually funded' Death Insurance or Income protection insurance outside of what your super provides then have a look at the benefits of both insurances supplied by your super fund in comparison to the (individually funded) insurances you pay outside of your super account and see which is a better deal. In my instance I found the super provided insurances were cheaper (smaller increase to monthly premiums) to increase the pay out at death or total disability or if your needing income protection. You then can save on not paying for those 'individually funded' insurances.
If your workplace has salary sacrifice, see if you can put some money away in your super, before tax! I do a fortnightly additional payment into my super through salary sacrifice and my pay packet has reduced by a negligible amount.
Most super accounts have a High risk or low risk investment solution, have a look at putting a small portion of your super into high risk. I requested 30% of my super to be allocated to high risk investments. Even though the Australian Market has been going through a rough patch with COVID and all, I continue to see my super increasing (not by great amounts, but still increasing).
Depends on your lifestyle and what you believe is the future of this world and its economy.
I suspect we are going to head into a prolonged lower yield financial environment. That coupled with the massive disruption to white collar work from automation in the coming 2 decades will have some profound effects that I don't think many people are prepared for.
Personally for complete financial security I would not retire on less than probably low 7 figures. To give perspective our lifestyles (we don't hard budget) costs 60-70k/yr and I can't envision significant lifestyle inflation.
$46million, as someone above has already said
what is the reason for $46million?
meme forum thread about BTC
1 million must be enough if you are earning 5% interest… provided you are a couple and paying minimum tax 19k tax free each and 19% on the rest..
just a rough estimate.. if you plan to leave nothing behind after you die.. you may need less.. around 750k so you chip into your principal over the years..
My plan:
Roughly $2 million in retirement funds to generate about $140k in annual (net) income @7% (I'm happy with the % that I know I can achieve, others may have opposing ideas). The plan is not to touch the principal but that may change in future.
This is to retire at 67 and is for myself and my partner. Property will be owned outright.
I could probably retire earlier on less but I want to do stuff, buy stuff, live life how I want to live. I want to fly and build planes and travel. Others will have different plans and need less, or more. Good for them.
We're on track. In our 50s now but we'll get there.
what guarantees 7-8% annually?
Don't know. Don't care
I plan to have 50k per year per person. Based on that, need over a million in super each Or 3 investment properties loan free.
thank you everyone for your thoughtful comments. I appreciate all of the feedback
I think the age pension + $200/week (10k/year) would be sufficient for one person who has paid off a house + has undertaken measures to minimise ongoing expenses (e.g has a new car with 10 year warranty, solar panels, good insulation, not buying a house in a bushfire or flood prone area to minimise insurance costs, buying a house in a local government area with low rates etc..). This would allow for an income of approx $650/week net, it's an awful lot better than the aged pension by itself.
To achieve that you'd need about 200k if retiring at 67 to live until 87 and would not need to even earn any interest in the 200k. After that, if still alive, could get a reverse mortgage.
A million invested would give me $30 - 45 thousand a year, that would do to retire.
Love this topic. The 2 critical factors in my numbers are paying off the mortgage and getting the child through school. Once that's done my plan is to "transition" towards retirement or essentially move to PT work and enjoy myself more in my newfound time. This will allow the investments to grow and my job will just meet living expenses as opposed to adding to investments anymore.
You only need millions to retire if you plan to retire in Australia.
Is this 1 million invested vs 1 million in super?
Is super not an investment?
it is… but you cant access super without higher taxes right?
Or you falled into this - https://www.mlc.com.au/personal/retirement/super-and-retirem…
if i was going to "retire early"
Ah yes, I see what you're saying now.
I don't think you need the full million outside of super, more like enough to tide you over until you get to the age where you can access your super tax free. The advantage being that you'll pay less tax on the super gains rather than investing outside of super right?
Will target $7.5m to $10m in networth. Not retiring in Australia. Somewhere cheaper probably. Before 45 will be nice and do something i like.
Move somewhere cheap and quiet, you'll be fine
THought you didnt need to worry about money when you retire because that's what super and pension is for?
i think that's only if you want to retire when you're elderly.
Thought you could take out a pension or super when you retire, not when you're elderly….?
If you want to own a home with maybe 4 other properties all paid off for investment purpose, it might amount to $3m.
Then you likely need another 500K for any rainy day cases
This amounts to 3.5M$
The 4 properties can likely give you around $6k a month of rent that should keep a family comfortable
@Whomastadon: Depends which old folks you're talking about. Ex prime ministers get that back 10 fold.