How Much Is Enough? Do You Need More or Less to Live the Good Life in Retirement?

Is it $500k?

Is it $1m?

Is it $2m?

Is it more or less?

If retirement is hurtling towards you at a rate of knots, it’s likely this question is front of mind.

It’s probably the number one question on your mind. You’ve probably used a couple of calculators. Maybe you’ve worked it out and maybe you’re frustrated you can determine what it is you need.

But why are you asking this question?

You want to know that we’ll be okay financially in retirement.

You want the confidence to be able to spend in retirement.

To be able to splurge on an International holiday when you want to. If you want to go in comfort, you know you can spend the extra and upgrade to business class seats.

To buy a caravan and explore all parts of Australia without worrying about the cost of fuel.

Be able to go out with friends without worrying whether you can afford it.

The list could go on and on…but ultimately you don’t want to live a frugal lifestyle in retirement constantly living in fear of running out.

Why is it so difficult to work out your Enough number?

Firstly, it’s probably not if you use the 4% rule (divide your yearly expenses by 4%) and you’ll come up with a number.

Now that’s probably not a problem for someone who has multiple of millions of dollars saved towards their retirement.

But for the rest it provides a significant challenge.

Here’s the thing, your expenses aren’t going to be the same for every year of retirement

It’s a little like the weather goes through four seasons each year. It’s going to be different as you age and become less active. Your spending is going to change as you pass through the different stages of retirement.

For instance, we divide retirement up into the go-go, slow-go and no-go years. All will require different spending levels.

What do you need in terms of income to feel and live comfortably in those active years of retirement (go-go years)?

How many trips are you going to take? Are they International or local?

There’s many inputs and outputs to carefully consider as you try and calculate your Enough number.

Inputs and Outputs to be Considered

Work: An important one is how long are you planning on working for? Or are you planning on working part-time for a period of time because you don’t want a hard stop?

Lifestyle Costs: Are you going to require a steady income to meet expenses over your retirement or are you planning on spending less in your less active years?

Holidays: How regular are you going to holiday? Are they going to be overseas or local? For how long are you planning on taking these types of holidays? How much are they going to cost?

Longevity: A critical component which becomes a blindspot for many. Unless you have a major health issue, the probability of one in a couple living well into the nineties is extremely high.

Downsize: At this stage in life, many of the kids have flown the nest or very close to it. Is the house you are in going to be too big for your needs? Maybe you can release equity from the home to use to spend in retirement.

Excess Income: Many have paid off the mortgage at this stage in their life. This provides an opportunity to pump more money towards your retirement bucket as you make the final push towards retirement.

Investment Return: A further blindspot of many we talk too. They think they can assume the average return they have been getting from their super will continue. This is a critical error in mindset. You’re about to move into the decumulation of your assets. You need to preserve them for as long as possible. Which means you need to reassess the return you need to achieve to get you safely through retirement.

Investment Risk: While you are working, you can take as much risk as you like. You don’t need to access the money. But as you approach retirement, you need to consider your risk levels in the greater context of funding your retirement income. You don’t want to leave yourself exposed.

Inflation: What are your assumptions about inflation? We’ve just gone through a high inflation period. Will this continue or not? What’s the impact going to be on your Enough number?

Age Pension: What’s the impact of any age pension? It’s a fact that over 60% of people will access the age pension at some stage in retirement. Accessing the age pension is like accessing a pool of assets which in term fund an income.

Innovative Income Streams: What many people don’t know is there are many different financial products which can be used to fund your income in retirement. The main one is an account-based pension. An Innovative Income Stream is a combination of an annuity and account based pension. But provides access to more age pension through retirement. Which means your money lasts for a lot longer in retirement.

Inheritances: Yes, these can form part of a retirement plan, but I personally don’t like to count on them as guaranteed. You never know what can happen to your parents assets.

It’s the reason many struggle to work out if they will have enough money for their retirement. It’s so hard to work it out on your own if you don’t have the experience to know what to look for. Let alone knowing the in’s and out’s of the retirement system.

Then you have your own biases which can impact your decision making in a positive or negative manner. The decisions you make at this point can harm you or hurt you in retirement.

Do you need more or less money to retire comfortably?

Well it’s going to depend…

It’s going to depend on how hard you’ve already saved and the type of lifestyle you want to live in retirement.

If I’m going to be brutally honest, if you want to live comfortably in retirement and be self funded, you’re probably going to need in excess of $1.5m.

For some, that’s not going to be enough…and for some it’ll be fine.

But either way, we work with couples and individuals who sit on either side of that equation. It’s really going to depend on what you really want out of retirement.

For some, they are going to want all the luxuries, which means they are going to need a nice pot of gold to fund it.

For most, they just want enough to live comfortably and go on the odd holiday here and there. Maybe buy a caravan and travel the country. Which means they may not need as much.

There will be options, it’s just a matter of what you are going to be comfortable with.

How do you resolve the “ENOUGH” equation?

 

You can go it alone and try to figure it out. You may get it right, but the majority of people don’t have the specialised knowledge to work it out.

That’s not to say you’re not knowledgeable. The fact is, retirement takes a different set of skills. Not the skills you’ve acquired over your working life. All for one reason, it’s all about accumulation in your working years.

Very few people have been exposed to the decumulation phase, which is retirement.

This is where seeking specialised retirement planning can pay off for you. Someone who can sit down with you and help you work out what all the options are based on your specific circumstances.

This will require a detailed analysis of your cashflow, both now and in retirement.

This is where expert advice can pay off big time…

If you want to plan your retirement the right way, it’s time to book your Retirement Clarity Call by clicking here to book. We’ll have a quick chat about what you’re struggling with and brainstorm how you can resolve your retirement worries.

Glenn Doherty – CFP – Financial Planner | Retirement Planning Specialist |Retirement Planning Made Simple for over 55’s within 7 years of retirement

We work with people in Adelaide and around Australia virtually via zoom!

Retirement Retirement Income Retirement Planning