Retirement Planning

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How much do I need to live comfortably in retirement?

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by Peter Switzer

I would like to know how much I need to have in super to be comfortable in retirement. My husband and I are in our mid-40s with two kids in their teens, and we earn approximately $120,000 annually. We owe some $150,000 in mortgage repayments, and have approximately $200,000 in super.

I can’t advise you on what to do, but I can give you some standards that financial advisers work off when they draw up a plan for a customer.

Let’s assume you would be a balanced risk profile person in retirement and you would be looking for an eight per cent return from your super fund. If you finished work with $1 million in super, it would give you, on average $80,000 a year in retirement. Some years you would do better than eight per cent and others worse. If the good outweigh the bad, your capital grows and vice versa.

The number crunchers say taking out $80,000 a year (indexed at four per cent per annum) would see your super money run out around age 85 after retiring at 65. With typical charges from some super funds – say, four per cent entry fee and 2.5 per cent ongoing fees – it could go to zero by age 79! By taking less than $80,000, say $60,000 a year (indexed at four per cent per annum), the $1 million in super would outlast most of us. It peters out at age 93 without hefty fees but only 84 with the slugs.

You can retire on less than $1 million and most of us will, but then you’ll have to take less out each year. Others will scale back their housing to pump up their super while some will look at reverse mortgages – but be careful with these. If in doubt, seek professional financial advice.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Friday, November 18, 2011