How much money do you need to live
well in retirement?
It’s a simple question. If you quit work today, how much money would you need to live a comfortable lifestyle?
Most people don’t think about it in detail, but it’s actually easy to calculate roughly how much you’ll need in order to retire comfortably. And a little planning now could make a big difference at retirement.
Think of this as your magic number? $50,000? $70,000? $120,000? How much retirement income do you need from your investments before you could quit work forever? To find your magic number, start with a ballpark calculation of your retirement needs.
Conventional wisdom suggests that you can retire modestly on about 75% of your pre-retirement income (assuming you’ve paid off your home loan and other major debts). Of course, many people want a little more fun in retirement than that!
If you earn around $70,000 – $80,000, you should expect to need around $50,000 – $60,000 per year in income to fund a modest retirement. This may or may not be true for you, but it’s illustrative of the issues you might be considering in retirement.
Let’s say you would like your investment nest egg to produce $50,000-$60,000 for you. Based on this scenario consider that you might,
- Invest your capital in a term deposit with a major bank,
- Receive interest income at 6% per annum, paid every 6mths,*
Therefore, in order to produce an income of $50,000 to $60,000 from your term deposit, you’d need between just over $830,000 to $1,000,000 in capital to support your modest retirement lifestyle.^
The problem is, not many Australian’s retire with over $1 million dollars in their retirement nest egg. The average Self Managed Super Fund balance in Australia is $947,000.# If your Super balance doesn’t look like this, either you need to work longer to save more, or you should consider investing your money for better income returns.
How can you achieve a comfortable or luxury retirement?
By investing in other investment classes, it’s possible you could use the income or capital growth to live a better lifestyle. So let’s take your $830,000 to $1,000,000 in capital and see what you need to improve your lifestyle.
- Modest Lifestyle: Leave your money in the bank and earn a modest income that will cover your basic living costs.
- Comfortable Lifestyle: Invest in property or shares (with no debt or leverage) at an average return of 9.8%pa1, and it’s possible you could improve your lifestyle to a comfortable level. At an average annual earning rate of 9.8% you could potentially boost your income to $81,340-$98,000, which would most likely give you a similar lifestyle to your pre-retirement income, along with a few luxuries. (It would not be sensible to put all of your retirement capital into one asset class like property or shares. This example is for illustrative purposes only.)
- Luxury Lifestyle: To live a lifestyle with a few more luxuries, you’ll have to either begin spending your capital base or alternatively seek out investments with higher yields than property or straight shares alone. At an average annual earning rate of 15%pa2, on your retirement capital of $830,000 to $1,000,000 your income might well be as much as $124,000 to $150,000. If you earned that much today to pay for your lifestyle, assuming you had no debt or other big expenses, you might well afford to eat out at restaurants more often, pursue your favourite hobbies, and maybe even to take an overseas holiday each year as well.
Earning a higher return on your capital obviously pays dividends in the lifestyle you can afford in retirement.
| Retirement Lifestyle | Average Yield and Investment Type required | Potential Annual Income |
| Modest | 6%pa - Term Deposit or On-Line Saver Account | $50,000 - $60,000 |
| Comfortable | 9.8%pa - Property or Shares (no borrowing) | $81,340 - $98,000 |
| Luxury | 15%pa - Strategies like the Buy-Write | $124,000 - $150,000 |
| * Based on $830,000 to $1,000,000 in retirement capital | ||
It’s possible to retire earlier or more comfortably than you think
Your retirement planning depends on the lifestyle you require. If you are happy to live a modest or comfortable lifestyle, you may be able retire earlier than you think. On the other hand, if you choose to put your money in investments with potential for higher returns, you may need less capital to achieve your desired lifestyle compared to keeping your savings in a bank term deposit.
| Retirement Lifestyle | Annual Desired Income | Capital in the Accelerator Fund |
| Modest | $50,000 - $60,000 | $335,000 - $500,000 |
| Comfortable | $70,000 - $90,000 | $500,000 - $700,000 |
| Luxury | $115,000 - $135,000 | $750,000 - $1,150,000 |
| * A realistic expectation of the Fund could be up to 0.8%-1.5% per month on average or up to 10%-18%pa | ||
What lifestyle do you want in retirement?
Consider for a moment what it might mean to you if you could achieve an income on your capital that was greater than bank interest. If you hold your capital in a bank term deposit, you may need as much as $830,000 in order to lead a modest retirement (or much more if interest rates return to lower levels).
Whereas if you invest in higher yielding assets, you could require only as much as $335,000 to $500,000 in order to live a modest lifestyle in retirement.
It wouldn’t be prudent to risk all of your capital in one investment, but for illustrative purposes, with the majority of your retirement capital in the Buy Write Strategy (or an investment like the Accelerator Fund) producing 10-18% per annum in monthly income, you might be able to retire earlier than you think!
And if you’re just starting out, the Accelerator Fund might be well be a good growth investment option to help you build your nest egg faster.
Invest in a Better or Earlier Retirement
The Accelerator Fund provides opportunities to improve your lifestyle or even retire earlier. Visit our Quit Work Calculator to discover how much you need to retire based on your individual circumstances or dreams. Then learn how you can be involved in the Accelerator Fund.
Learn about Accelerator
* Term Deposits At time of writing, it's possible to find an annual interest earning rate of 6%pa. Please be advised, interest rates fluctuate. There is no guarantee you would continue to receive 6%pa for the duration of your retirement. If you received less than 6%pa, you would have to use more of your capital in order to maintain your target of $50,000-$60,000. Over the last 21 years, the 1 year term deposit rates have averaged 6.3%pa roughly in line with today's 1 year rate. Sourced from BTIML.
1. Residential Property has averaged a total return of 9.8%pa in the last 20 years to Dec 2009. Source: Long Term Investing Report, Australian Stock Exchange & Russell Investments.
Shares have averaged a total return of 9.7%pa in the last 20 years to Dec 2009. Source: Long Term Investing Report, Australian Stock Exchange & Russell Investments.
2. Buy Write Strategy According to the ASX, in the 14 years from Jan 1993 to Dec 2006, $10,000 invested in the S&P/ASX Buy Write Index™ increased to over $71,000, or a 15%pa total return. Source: ASX Buy Write Strategy Fact Sheet
^ Capital in Retirement This scenario doesn't take into account any government pension. For a detailed analysis of your personal situation, you should consult a retirement planning professional.
# Average SMSF Super: As at March 2010, there were around 423,000 SMSFs (Self Managed Super Funds) with an average fund size of $947,000. Source: APRA.
Assumptions
- Investments rise and fall over time and past performance does not guarantee future performance. Calculations above do not provide for any movement in the value of the underlying assets.
- The figures above are illustrative in nature and do not take into account your location, your preferred lifestyle, your dependants or any debt you may have at that time. Considering how much income you'll need in retirement is specific to your situation.
- No consideration has been given to the effects of any government assistance in retirement.
- Income estimations do not take into consideration any income tax payable on earnings or investments.
- Estimations of lifestyle possible on certain levels of income do not take into account inflation and the rising costs of living over time.
- No consideration has been given to what is an acceptable level of risk in investing for any individual.
- It is not prudent to put all of your capital into one investment. Consideration has not been given to what represents a balanced portfolio for you or how the Accelerator Fund might play a part in a balanced portfolio.
| Retirement Capital | Income at 6% pa | Income at 9.8% pa | Income at 15% pa |
| $300,000 | $18,000 | $29,400 | $45,000 |
| $500,000 | $30,000 | $49,000 | $75,000 |
| $700,000 | $42,000 | $68,600 | $105,000 |
| $830,000 | $49,800 | $81,340 | $124,500 |
| $1,000,000 | $60,000 | $98,000 | $150,000 |
| $1,500,000 | $90,000 | $147,000 | $225,000 |
| $2,200,000 | $132,000 | $215,600 | $330,000 |
Important Information
The Excela Australian Equity Income Accelerator Fund™ aims to produce in excess of 1% per month (or 12%p.a.) on average in premium income distributions.
A realistic expectation of income distributions from the Fund could be up to between 0.8% - 1.5% per month on average.
The capital value of the Fund can rise and fall with changes in market conditions and sentiment. Payments of distributions can have a negative effect on the unit price of the Fund.
Percentage monthly income distribution figures were calculated using the distribution amount against the average balance of the fund for that month.
The fund does not guarantee any particular return or that distributions will be paid monthly (however it aims to do so).
Investments can go up and down. Past performance is not necessarily indicative of future performance. To fully understand the potential returns and risks associated with the investment please refer to the PDS.
For the current performance of the Accelerator Fund please go to Historical Performance.
This information has been prepared without taking into account your investment objectives, financial situation, or needs. Before making an investment decision you should consider the appropriateness of the information having regard to these matters. Before you invest it is important that you read and understand the terms set out in the Accelerator Product Disclosure Statement ("PDS"). In particular, it is important that you understand the risks associated with an investment in Accelerator set out in the PDS.
Fundhost Limited ABN 69 092 517 087 AFSL 233 045 ("Fundhost") as the Responsible Entity is the issuer of the Excela Australian Equity Income Accelerator Fund™ ("Accelerator") ARSN 139 641 946. Excela Funds Management Pty Limited ABN 25 124 028 244 ("Excela") is the Investment Manager for Accelerator. Excela is a Corporate Authorised Representative of Excela Equities Limited ABN 17 010763041 which is the holder of an Australian Financial Services Licence (246510) and a Market Participant of the Australian Securities Exchange ("ASX").
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