Insights

As we progress through life and our careers, the importance of preparing for retirement becomes increasingly clear. One timeless principle that continues to guide this journey is the idea of consistent saving — ideally, at least 10% of your income. This concept was eloquently stated in The Richest Man in Babylon by George S. Clason, first published nearly a century ago, where he advised, “A part of all you earn is yours to keep.”

While times have changed, the fundamentals remain. The power of compounding interest, combined with disciplined and regular investment, can create a substantial nest egg. Though not always easy to implement, this long-term strategy can ultimately produce what we might call a “bucket full of savings and earnings” — a financial cushion to support your retirement lifestyle.

What Does Retirement Cost?

The Association of Superannuation Funds of Australia (ASFA) recently published estimates (September 2024) for annual retirement living expenses:

Modest Lifestyle:

· Single: $32,930

· Couple: $47,475

Comfortable Lifestyle:

· Single: $51,814

· Couple: $73,031

These figures provide a useful benchmark for assessing how much you may need to fund the lifestyle you envision in retirement.

How Much Do You Need to Invest?

Many of our clients have adopted a balanced or growth investment strategy to support long-term income needs. If you’re comfortable with some market volatility and are seeking capital growth, your target return might be inflation plus 5%. Assuming inflation is 2.5%, that equates to a gross return of 7.5% per annum.

Let’s take a practical example:

A retiree with $1 million in retirement funds generating a 5% net return would receive $50,000 per year. To comfortably cover annual living expenses of $75,000, you would need a portfolio of approximately $1.5 million. If you withdraw more than this income each year, your capital base may slowly erode over time.

The Three Bucket Rule

To simplify your financial picture, think of your assets divided into three key “buckets”:

· Lifestyle Assets (e.g., your family home)

· Superannuation

· Other Investments (e.g., shares, property, cash holdings)

Here’s the takeaway: If your primary residence is worth $1 million, then to retire comfortably and sustainably, you should aim for $1.5 million in superannuation and other investments. That’s 1.5 times the value of your home, and it’s a clear, achievable goal that allows you to:

· Maintain a retirement income of approximately $75,000 p.a.

· Preserve capital for unexpected expenses

· Leave a financial legacy for your beneficiaries

The Three Bucket Rule offers a practical framework to help you answer that all-important question: “How much is enough?” By aligning your superannuation and investments to be 1.5 times the value of your home, you can give yourself a strong foundation for a secure and fulfilling retirement.

Are You On Track for Retirement?

At Altitude Advisers, we specialise in helping clients plan with confidence. Whether you’re approaching retirement or simply want to review your progress, our Team is here to provide personalised advice aligned with your goals.

Contact us today to book a retirement planning session — and take the next step toward financial peace of mind.

Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd ABN 95 617 419 959 AFSL 496178

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