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How much money do you need to retire?

A common question is “how much do I need to retire?” Unfortunately, it’s impossible to give a simple answer because the amount of money needed depends on a wide range of variables that include how long you will live, the state of your health, the rate of inflation, the earnings on the assets you own and how often your children put their hands out for help.

A rule of thumb

A good rule of thumb is that you need capital of 15 times your planned expenditure. For example, if you require $40,000 a year when you retire, you should be trying to accumulate $600,000 in financial assets.

A bonus is our generous welfare system, that allows a couple to live in a luxury mansion, have more than $700,000 in other assets and still get a part age pension and all the fringe benefits.

Furthermore, as your assets diminish, you qualify for a larger pension, which tends to reduce the rate at which you run down your portfolio.

One of the best ways to boost the money you will have in retirement is to work a little longer and because of the way compounding works the benefits can be dramatic. Consider a person who is aged 58 and who has $300,000 in superannuation. If they retired immediately they would be lucky if their superannuation lasted to age 66 if they withdrew $40,000 a year and it earned 7%. However, working just two more years full time to age 60 would mean two more years of growth and contributions – by age 60 the balance could be $400,000. Their money may then last till age 72, or six years longer for working another two.

That is probably still way short of what they will need, so let’s recalculate the numbers on the assumption they will work to age 65. If they started with $400,000 at age 60, and salary sacrificed the maximum allowable of $35,000 a year, they should have $750,000 at age 65.

This would probably last them for life.

Other benefits of working longer

There is a growing consensus that working longer is not just good for your pocket, it’s also good for your health. A recent study by the UK-based Institute of Economic Affairs and the Age Endeavour Fellowship, titled, Work Longer, Live Healthier: The Relationship Between Economic Activity, Health And Government Policy, shows there is a small boost in health immediately after retirement but that, over the longer term, there is a significant deterioration.

It suggests retirement increases the likelihood of suffering from clinical depression by 40% and the chance of having at least one diagnosed physical condition by about 60%. The probability of taking medication for such a condition rises by about 60% as well, according to the findings. People who are retired are 40% less likely than others to describe themselves as being in very good or excellent health.

At first glance this recent research appears to contradict the work done by Sing Lin, Ph.D, which was based on the number of pension cheques sent to retirees of Boeing Aerospace. It showed that the average lifespan for people who retired at 50 was 86, whereas those who retired at age 65 had an average lifespan of 66.8. This apparent paradox is not hard to explain. The Boeing study pointed out that those who resigned at a relatively young age did not sit around and do nothing. They worked at a slower pace at jobs they found fulfilling and stimulating.

There is a wealth of other research that shows that happy and active retirees have emotional and financial security as well as a broad range of interests. A person who is confident enough in their future to leave a career with a major corporation at age 50 is more likely to have this than one who hangs on to age 65 because there is nothing else in their life. In life, and in your investment portfolio, diversification is the key. And making sure you have enough money to enjoy it.


Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His website is His advice is general in nature and readers should seek their own professional advice before making any financial decisions.

May 24, 2014

These factors assume a constant rate of return. Returns are hugely variable, a condition made more acute by the sequence of returns risk. If you want to ensure your assets aren't exhausted before you are, you need upwards of 30x (based on research regarding safe withdrawal rates in Australia). However, if you are fortunate enough to be born in the right year (which determines the market you retire in to), then it can be as low as 8x. Einstein said 'make things simple, but not too simple', Friedman said 'never try to walk across a river because it is, on average, only four feet deep'. Our use of averages makes things too simple, and leads us to unknowingly accept risks. 15? Could be half that, could be twice that.

May 24, 2014

Using multiples of 15 16 17 etc is too simplistic and is technique left over from the 1980's. There are a range of online calculators that can be used these days. Used realistic assumptions and be exact on living expenses and you'll get a result closer to your own individual circumstances. A far better approach is to seek independent advice and a financial planner should be easily able to tell you the "number" required.

May 26, 2014

Andrew, I think Noel may have included access to the pension in his figures, he is never far off the mark, we would need to know what the assumptions were

Ramani Venkatramani
May 23, 2014

Noel's article rightly steers us away from the monetary fixation that has long ailed the adequacy debate. Granted that the wealth management and advisory sectors are behaviourally programmed to focus on money, it is time we considered factors no less critical to a contented - as distinct from merely materially enriched - twilight life.

While money is necessary, it is not sufficient. Health, family and friends dominate the scene. Inability to cope with declining faculties, potential and actual loss of near and dear ones, the trusted busting the trust, grasping relatives more interested in inheritance: the prospective retiree is exposed to risks when physically and emotionally vulnerable.

Our system prepares the young for getting into the bandwagon of work. The old are left to fend for themselves getting off it.

A holistic system will assist in developing core friendships and interests beyond work, and help manage expectations around the inevitable volatility of outcomes.

My 94-year old mother’s face lights up when friends and family visit. Money has nothing to do with it.

Mangling the famous one liner, 'In retirement, it is just not the money, stupid!'

Mary McLaughlin
May 23, 2014

I don't wish to argue against the joys of retirement but the Sing Lin "work" is not a credible reference; Boeing issued a debunk in 2004.

Kind regards.


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