How Much Do I Need To Retire?

We all long to hang up the suit and tie, work on our golf swing and take a well-earned break after many years in the workforce. Retirement is the pot of gold at the end of the rainbow but without careful planning, your twilight years may be darker than you think.

The first thing to consider when planning your retirement is life expectancy. Figures have changed over the years and the new Australian population is living longer than their forefathers. In 1946, for example, the average male was expected to live to 77, females to about 79. These days, however, the national averages are well over 80 and 15% of us will make it to 100. This increased longevity requires careful planning and even a departure from the traditional method of stopping work entirely at 65.

Let's consider your desired level of income in these twilight years. The widely used rule of thumb is that you'll need roughly two-thirds of your pre-retirement income if you want to maintain your lifestyle. It's been said that a single person needs about $18,000 a year just to cover the basics of survival. A more realistic after-tax income is $25,000 but if you want extras, such as the occasional trip, you'd need about $28,000. For couples, an after-tax income of $30,000 covers your basic 'survival' needs, while $35,000 is a more realistic minimum. If you want to allow for things such as a new car or plasma TV you'd need at least $45,000.

So how much saving do you need to achieve this level of income? It depends on your retirement age and how tax-effective your retirement income is. If your retirement income is likely to be tax-effective, you should look at having savings of 17 times your desired after-tax income if you want to retire at 55, 15 times if you want to retire at 60, and 13 times if you plan to retire at 65. So if you want to retire on an after-tax income of $30,000 at age 60, you'll need about $450,000. But if you want to retire on $65,000 pa, you'll need closer to $1 million.

If this all sounds a bit out of reach, consider the options.

• You could work longer. By working just a couple of years extra you can really boost your nest egg, not to mention leaving your savings untouched.
• Continue part time work in retirement. Apart from added income, there are other incentives for casual or part-time workers over 65. If you're eligible for the age pension, you can get a pension bonus by choosing not to receive it until age 70.
• Make the most of the tax system. From October last year, seniors could earn up to $24,867 a year for singles and $41,360 for couples before paying tax, and that's not counting any tax-free retirement pension received.
• Use your home equity to partially fund retirement. If you're like many empty nesters and live in a big family home with no children, you might want to try 'down-sizing' to a smaller, less expensive home and pocket the change.

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