There has been a lot of talk over the years around how much you need in retirement. With figures ranging from as low as $200,000 to $1 million. However, we find many clients will need more than $1 million to live an ideal lifestyle. Everyone’s needs are different but if you want to have an income of $100,000 per annum you could need around $2 million in retirement assets. This means your home must be paid, you are debt free and you have $2 million of quality assets producing a reasonable income and capital growth over the long term. This can be a combination of superannuation, shares, investment properties and cash. The majority will need to be invested in growth assets to obtain a reasonable return over the long-term to keep pace with inflation. This will exclude some investment properties as the rental yield after expenses can end up being quite low at around 2% per annum. Additionally, you may still end up paying income tax throughout retirement where these assets are held in your own name, reducing the net return even further. To justify these properties, you need to be expecting good capital growth, otherwise your funds will be better invested elsewhere, such as superannuation.
There is a lot of confusion over superannuation, but it is simply a tax structure/vehicle to hold investments for retirement. Superannuation is invested predominantly in shares, and frequently in defensive assets such as bonds and corporate credit. In retirement superannuation is the most tax effective income stream, as once you’re over age 60 all withdrawals can be tax free (once retired) and earnings in the fund are tax-free up to the new $1.6 million balance cap.
There have been some investments books like the Barefoot Investor that can misleadingly suggest that you may only need $250,000 (couple) or even $170,000 (single) to retire. On its own this would not be enough, but the barefoot investor is factoring in receiving the Centrelink Age Pension. However, even factoring in Age Pension and withdrawals from super, this may only provide between $30,000 to $45,000 per annum, with your capital depleting by the time you reach life expectancy in your 80’s.
Based on many clients we see this is far below the average for an “ideal” retirement. Now, everyone is different and that may be sufficient for some, but we have found that most clients current lifestyles already exceed this level. For example, clients who are living their ideal life would be spending between $70,000 to $150,000 p.a. We find most people’s current lifestyle will remain at this level throughout retirement, therefore their current spending is a great reference point to how much they will need to live an ideal retirement. Based on these living costs such as these, we would estimate that to live an ideal retirement you would need between $1M to $3M of retirement assets, plus own your home outright with no other debts.
This figure can look quite daunting but with good incomes and planning this can be achievable based on quality strategies that you can employ. We would recommend meeting with an Altitude advisor to get started working towards your ideal retirement.
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