How much do you need to retire?
The most common question I face as a financial planner working in the retirement and pre-retirement space is, how much money do you need to live comfortably in retirement?
Its the sort of question that as a qualified and licenced financial planner working almost exclusively with older Australians, I should be able to answer but the honest truth is I can't.
The closest I can come to answering it is to say is well, it depends.
It depends on your expectations of what is a comfortable living in retirement and what you want to do with your life? The answer to these two questions varies with every person who moves into retirement.
However, I do think I can help.
A foundation stone to retirement is to own your own home outright. In fact you should be in a position where you have paid all your debt outright. Credit cards, personal loans, everything.
For some that will be a given but for others it will be a challenge. For those who do find this prospect challenging, then try to think outside the square.
Is it possible for example to sell your home and buy something smaller or in a cheaper location, where you can own it outright? Your initial response might be no, but you should take time to think that through.
If this is the only significant asset you own then you will most likely qualify for the age pension. As I write in my book, The No Regrets Guide to Retirement, the age pension is the equivalent of having about half a million in superannuation.
More you can't loose it, its indexed for inflation and it will last as long as you do.
Its a great safety net for those that need it and for most people if you own your own home and receive the full age pension and all the associated discounts that are available to age pensioners, life is pretty good.
Notice I said good. Not great. Life improves if you have at least some money in super and you can have up to $419,000 in super as a couple before you loose any of your age pension entitlements.
As a general guide for every $100,000 you have in super, you should expect to receive about $6,000 a year in income net of tax or about $500 a month, if you set up your super correctly.
So if you manage to put $400,000 in super, you can expect to receive about $24,000 a year tax free in addition to the age pension. That makes a big difference between getting by from pension day to pension day and having some spare cash to treat your grandchildren on their birthdays, for example.
Having said all that, I would urge anyone who can provide for themselves in retirement without relying on the age pension to do so and that will be the case if as a couple you have $900,000 or more in super.
So if you want to live independently of the Government and live a good live through retirement as a couple you probably need to have about $1,000,000 in super and to set it up so it pays you about $60,000 a year net of tax.
For some that will sound like flying to the moon. However, for many, especially couples who have owned a home in a capital city for twenty or thirty years, it might be easier than they think.
The average house price in Melbourne is some $955,000, although most free standing homes sell for a lot more. The average price of a house in a regional town if about $500,000.
By downsizing from Melbourne to a regional town, you can enjoy a much more relaxed lifestyle and as a couple, make a special downsizing contribution of $300,000 each or $600,000 together to super.
If you take this step and you already have some money in super, life might start more reasonable when you do stop work. As a financial planner I can certainly help you make the most of whatever money you do have.