How much do I need to retire at 60?
Theoretically, how much money you need in retirement depends on how long you live. Although there’s no crystal ball for this, we know that improved healthcare and economy mean that people are living longer than their parents’ generation.
When budgeting for retirement, try to go for the maximum life expectancy. Men can expect to live up to 86, women to age 90. This means if you retire at 60, you need to fund your living expenses for at least 26 to 30 years, if not more. Also, look at your lifestyle and medical history as well as your family’s life expectancy and medical history. It’s never too early to start thinking about how to maximise your income in retirement. By acting earlier, you have a better chance at achieving and funding the lifestyle you want.
The Theory
A common rule of thumb is that if you want to retire at 60, you will need about 15 times the amount you have calculated for your annual after-tax retirement expenses. So if you estimate $60,000 per year then you will need $900,000. If you can wait until 65, you may only need 13 times expenses, which will be $780,000. Remember, if you plan to leave a legacy to your children or have a holiday home, then you need to add the cost to this estimate.
Another way of working out how much you might need in retirement is to plump for 70 percent of your net income in the last year before retirement (not too useful if you are 10 to 15 years away from that date). This approximation was a standard for many years. However, it may be too general, and you may be better served by having a more detailed understanding of your actual needs.
The Facts: Budgets for actual living expenses in retirement
According to recent data, a couple looking to achieve a comfortable retirement needs to spend $56,236 a year, while those seeking a ‘modest’ retirement lifestyle need to spend $32,511 a year.
|
Modest lifestyle |
Modest lifestyle |
Comfortable lifestyle |
Comfortable lifestyle |
|
|
Housing – ongoing only |
$60.65 |
$58.22 |
$70.30 |
$81.49 |
|
Energy |
$40.48 |
$53.77 |
$41.08 |
$55.72 |
|
Food |
$74.90 |
$155.15 |
$107.00 |
$192.60 |
|
Clothing |
$18.05 |
$29.30 |
$39.06 |
$58.60 |
|
Household goods and services |
$26.44 |
$35.85 |
$74.38 |
$87.14 |
|
Health |
$37.28 |
$71.95 |
$73.97 |
$130.55 |
|
Transport |
$93.36 |
$96.01 |
$139.13 |
$141.77 |
|
Leisure |
$71.76 |
$106.91 |
$217.46 |
$298.00 |
|
Communications |
$9.33 |
$16.33 |
$25.64 |
$32.64 |
|
Total per week |
$432.26 |
$623.49 |
$788.02 |
$1,078.50 |
|
Total per year |
$22,539 |
$32,511 |
$41,090 |
$56,236 |
The bottom line
It’s never too early to start planning, but if you want to see where you truly stand the best bet is to discuss your position with a qualified Financial Planner, such as Accountplan’s own Dion Richardson. Dion has years of experience in guiding clients toward the best possible outcomes so call Accountplan on 07 3883 8999 to start your retirement planning journey.
Source: MYOB
