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Can we retire at 60?

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I am in my late 40s and my kids are off our hands, both now living away from home and have good jobs. My wife and I work as teachers and we would like to retire at 60 but we are not sure what we need in retirement. I have heard a million dollars is good but what do you think? And should we retire at 65?

There’s no simple answer but many so-called experts will say a million dollars is a good target for retirees. I should say a million dollars adjusted for inflation is better but let me explain the thinking behind this before giving you the amount I think you might need.

The million-dollar figures work by assuming that if you could bank that money safely at five per cent on average in a safe fixed term deposit, you would average $50,000 in income. And as retirees living on their super pensions don’t pay tax they would have this reasonable amount of income to live on.

They could also reduce their capital by another $20,000 and live on $70,000. Of course, this will reduce future earnings and therefore many retirees might get help from a financial adviser to get a safe seven per cent or even a harder to get 10 per cent or more each year, which might mean there will either be more to live on or less erosion of the capital base of $1 million.

When I talk to my financial planning clients, I ask them what do they want to live on? Surveys by ASFA say most Aussies want two-thirds of their finishing salary to live on in retirement. So if you were on $100,000 before leaving work, you would want $66,000 in retirement.

After asking my clients what they want, we look at what they are on track to retire on and that’s how we create the strategy for their investments ahead of retirement. Let’s face it, the best way to retire would be to say that you need $100,000 to be really happy in retirement and so if you had $2 million you could safely invest it at five per cent and get that money.

If you had another million, which you could invest more aggressively, say in the stock market with high dividend paying, blue chip stocks, then you could be in an ideal situation.

Of course, I have drawn an ideal situation but you can easily adjust it to suit your circumstances. A million at five per cent gives a nice $50,000 and if there are two of you, well then there’s the $100,000.

I say you should work as long as you can as we are all living longer. I recommend you have a plan and get a strong idea what your retirement figure has to be and then make sure it happens. Good luck.

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: Saturday, April 30, 2011

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