Contents

*Note:** This article is periodically updated with new figures (in particular the effects of the latest Age **Pension** rate changes), covering retirement incomes when retiring at age 55, age 61, age 65, age 67 and age 70. The article allows readers to compare what a $1 million retirement can deliver if retirement savings are invested with returns of 7% each year, or if invested on retirement with returns of 5% a year. If you opt for a 5% investment return, rather than, say, 7% return, during retirement, then you will need to accept a lower annual income for the same lump sum in retirement. If you retire at an older age, then your $1 million will deliver a higher income for a set number of years, or your required income will last longer. The annual income figures (where relevant) include Age Pension rates effective from March 2014 (and applicable until September 2014). Latest article update is August 2014.*

I am often asked the question ‘how much super is enough for a worry-free retirement?’, and we regularly update our special *SuperGuide *articles on this topic for our readers. In this article I’m answering the question: what does a $1 million retirement look like? This article forms part of a two-part feature ($1 million and $2 million retirements) for those readers who want a truly comfortable life in retirement.

Due to Age Pension entitlements, the majority of Australians will need nowhere near $1 million in today’s dollars to have a comfortable retirement, but an increasing number of Australians are planning for (or at least hoping for) a more-than-comfortable retirement lifestyle. In this article, I do the numbers for those who are aiming to accumulate the magic $1 million for retirement. Due to the many requests from readers, we have updated the calculations to include annual retirement incomes based on your savings being invested at 5% per annum, as well as returning 7% each year. We have also updated the article to include calculations for those retiring at age 67 or age 70 (aligning with the increasing Age Pension age).

**Note:** In a related article, I also crunch the numbers for those readers who aspire to a $2 million retirement (see article Crunching the numbers: a $2 million retirement).

Continue reading to find out what $1 million in today’s dollars can deliver you if you want your lifestyle to last until the age of 87 or until you want your money to last until the age of 100, or somewhere in between. The average life expectancy for a 65-year-old woman is 87 years, while average life expectancy for a 65-year-old man is 83.5 years. If you retire at an age older than 65, for simplicity, the calculations remain based on the money lasting until age 87, and age 100. I provide figures for a single person or a couple, and where relevant, I include any Age Pension entitlements.

*Important: The calculations contained in this article are merely a conversation-starter for your retirement plans. The assumptions used for the calculations appear at the end of the article.*

## Remember, you may not need $1 million…

If $1 million or $2 million in retirement is beyond your wildest dreams then check out our other *SuperGuide* articles dealing with the topic of how much super do I need? Even when you have a small amount of super savings, you may be pleasantly surprised by what your retirement savings can deliver, especially if you’re entitled to a full or part Age Pension. According to ASFA, you can live a modest life in retirement on around **$33,500** a year as a couple, and a comfortable life on Just under **$58,000** a year, and the lump sums you need for this type of income is nowhere near $1 million, when you take into account the Age Pension..

For example, assuming Age Pension age is 65 years, a ridiculously low superannuation lump sum of **$8,000** can deliver a couple a retirement income of **$33,500** a year (when taking into account the couple’s full Age Pension entitlements of just over $33,000 a year). Without the Age Pension, a couple would need a lump sum of around **$485,000** to deliver the equivalent annual retirement income of $33,500 a year. With a healthy part Age Pension, a lump sum of around **$445,000** can deliver a couple **$58,000** (indexed) a year in retirement until the age of 87, and just over **$52,000** (indexed) a year until the age of 100, according to the ASICMoneySmart Retirement Planner, and assuming the money is invested in assets that return 7% a year.

**Note:** If your money is returning only 5% a year however, then you will at least an extra $100,000 as a couple to finance $58,000 a year (indexed) for 22 years, that is, until age 87 (including Age Pension entitlements).

**Tip:** If you’re aspiring to a $1 million retirement then it may be worthwhile having a chat with a financial adviser or an accountant about the most tax-effective, and ‘risk appropriate’ way to get there.

## So, what can $1 million generate in terms of an annual tax-free income in retirement?

**Summary point, for a couple:**A couple retiring today at age 65 with

**$1 million**can expect an indexed annual retirement income of between

**$79,000**(from aged 65 until age 87, and 7% return) and

**$49,500**(from age 55 until age 100, and 5% return). See text and Table 1 (later in the article) for further explanation.

**Summary point, for single person:**A single person retiring today at age 65 with

**$1 million**can expect an indexed annual retirement income of between

**$68,500**(from aged 65 until age 87, and based on 7% return) and

**$39,500**(from age 55 until age 100, and based on 5% return) and. See text later in the article and Table 2 for further explanation.

**Important:** The assumptions we use for this article and for Tables 1 and 2 appear at the end of the article.

I have created a table for couples (Table 1) and a table for singles (Table 2) due to the different Age Pension treatment for singles and couples.

- Table 1: If you’re part of a couple and retire with $1 million
- Table 2: If you’re single and retire with $1 million

**Note:** The $1 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see article Retirement: Today’s dollars, and why $1 million can’t last forever

## If you’re part of a couple and retire with $1 million

Due to the more generous treatment of assets for a couple when determining eligibility for the Age Pension, a couple with **$1 million** in super on retirement will be eligible for a greater part Age Pension than a single person owning the same amount of assets.

The scenarios for a couple are divided into five timeframes (also see Table 1 and supporting text):

- Couple – retiring at age 55
- Couple – retiring at age 61
- Couple – retiring at age 65
- Couple – retiring at age 67
- Couple- retiring at age 70

Note: Couples can enjoy such good incomes for such long periods due to receiving a PART Age Pension. Within Table 1, I indicate when a PART Age Pension starts using ‘part AP’.

Table 1: A $1 million retirement (in today’s dollars) for a COUPLE |
||||
---|---|---|---|---|

Investment return during retirement |
7% return on savings |
5% return on savings |
||

Money lasts until: |
Age 87 |
Age 100 |
Age 87 |
Age 100 |

Annual income (indexed) when RETIRE at: |
||||

Age 55* |
$65,130 | $58,830 |
$57,800 | $51,200 |

Part AP |
from age 67 |
from age 67 |
from age 67 |
from age 67 |

Age 61 |
$74,000 | $63,900 |
$66,800 | $56,275 |

Part AP |
from age 66 |
from age 66 |
from age 66 |
from age 66 |

Age 65 |
$81,600 | $67,840 |
$74,260 | $59,895 |

Part AP |
from age 65 |
from age 65 |
from age 65 |
from age 65 |

Age 67 |
$85,750 | $69,725 |
$78,400 | $61,545 |

Part AP |
from age 67 |
from age 67 |
from age 67 |
from age 67 |

Age 70 |
$93,640 | $73,035 |
$86,300 | $64,350 |

Part AP |
from age 70 |
from age 70 |
from age 70 |
from age 70 |

**Tax may be payable on income when retiring before the age of 60.*

*Note: See end of article for assumptions. ‘Part AP’ stands for part Age Pension. Figures calculated using ASIC **MoneySmart** retirement planner calculator (www.moneysmart.gov.au)*

### Couple – retiring at age 55

If you want to retire before the age of 60, then your super savings will have to finance a longer life in retirement, and you can expect to pay some tax on your pension income. You cannot claim the Age Pension until you reach your Age Pension age.

*Ignoring tax and assuming your retirement savings are invested at 7%*, if you retire today at age 55 with **$1 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$65,130**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67). **$58,830**(indexed) a year until the age of 100 (which includes part Age Pension entitlements from the age of 67).

*Ignoring tax and assuming your retirement savings are invested at 5%,* if you retire today at age 55 with **$1 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$57,800**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67). **$51,200**(indexed) a year until the age of 100 (which includes part Age Pension entitlements from the age of 67).

### Couple – retiring at age 61

If you retire before the age of 65 but after the age of 60, you can still expect tax-free pension income although you will only be able to claim the Age Pension (if eligible) when you reach Age Pension Age (currently age 65 and increasing to age 70).

*Assuming your retirement savings are invested at 7%*, if you retire today at age 61 with **$1 million** in super, as a couple, your savings can deliver you:

- A retirement income of around
**$74,000**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 66). **$63,900**(indexed) a year until the age of 100 (including a part Age Pension from the age of 66).

*Assuming your retirement savings are invested at 5%,* if you retire today at age 61 with **$1 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$66,800**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 66). **$56,275**(indexed) a year until the age of 100 (including a part Age Pension from the age of 66).

### Couple – retiring at age 65

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 65 with **$1 million** in super, as a couple, your savings can deliver you:

- a retirement income of around
**$81,600**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 65) - around
**$67,800**(indexed) a year until the age of 100 (which includes a part Age Pension from the age of 65).

*Assuming your retirement savings are invested at 5%,* if you retire today, at the age of 65 with **$1 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$74,260**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 65) **$59,895**(indexed) a year until the age of 100 (which includes a healthy part Age Pension from the age of 65).

### Couple – retiring at age 67

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 67 with **$1 million** in super, as a couple, your savings can deliver you:

- a retirement income of around
**$85,750**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67) **$69,725**(indexed) a year until the age of 100 (which includes a part Age Pension from the age of 67).

*Assuming your retirement savings are invested at 5%,* if you retire today, at the age of 67 with **$1 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$78,400**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67) **$61,545**(indexed) a year until the age of 100 (which includes a healthy part Age Pension from the age of 67).

### Couple – retiring at age 70

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 70 with **$1 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$93,650**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 70) - around
**$73,000**(indexed) a year until the age of 100 (which includes a part Age Pension from the age of 70).

*Assuming your retirement savings are invested at 5%,* if you retire today, at the age of 70 with **$1 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$86,300**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 70) **$64,350**(indexed) a year until the age of 100 (which includes a healthy part Age Pension from the age of 70).

## If you’re single and retire with $1 million

The scenarios for a single person are divided into five timeframes (also see text and Table 2 below):

- Single person – retiring at age 55
- Single person – retiring at age 61
- Single person – retiring at age 65
- Single person – retiring at age 67
- Single person – retiring at age 70

Table 2: A $1 million retirement (in today’s dollars) for a SINGLE PERSON |
||||
---|---|---|---|---|

Investment return during retirement |
7% return on savings |
5% return on savings |
||

Money lasts until: |
Age 87 |
Age 100 |
Age 87 |
Age 100 |

Annual income (indexed) when RETIRE at: |
||||

Age 55* |
$56,450 | $49,120 |
$42,200 | $40,500 |

Part AP |
from age 67 |
from age 72 |
from age 67 |
From age 67 |

Age 61 |
$63,000 | $52,560 |
$55,120 | $44,250 |

Part AP |
from age 70 |
from age 75 |
from age 68 |
from age 71 |

Age 65 |
$69,440 | $55,625 |
$61,600 | $47,325 |

Part AP |
from age 73 |
from age 77 |
from age 71 |
from age 74 |

Age 67 |
$73,560 | $57,450 |
$65,700 | $49,130 |

Part AP |
from age 74 |
from age 78 |
from age 73 |
from age 75 |

Age 70 |
$81,440 | $60,650 |
$73,640 | $51,965 |

Part AP |
from age 76 |
from age 80 |
from age 75 |
from age 78 |

**Tax may be payable on income when retiring before the age of 60.*

*Note: See end of article for assumptions. ‘Part AP’ stands for part Age Pension. Figures calculated using ASIC MoneySmart retirement planner calculator (**www.moneysmart.gov.au**)*

### Single person – retiring at age 55

If you want to retire before the age of 60, then you can expect to pay some tax on your pension income. You cannot claim the Age Pension until you reach your Age Pension age.

*Assuming your retirement savings are invested at 7%,* if you retire at age 55 with **$1 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$56,450**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67). - A retirement income of
**$49,120**(indexed) a year until the age of 100 (which includes a part Age Pension from the age of 72).

*Assuming your retirement savings are invested at 5%,* if you retire at age 55 with **$1 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$42,200**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 67). - A retirement income of
**$40,500**(indexed) a year until the age of 100 (which includes a part Age Pension from the age of 67).

### Single person – retiring at age 61

If you retire before the age of 65 but after the age of 60, you can still expect tax-free pension income although you will only be able to claim the Age Pension (if eligible) when you reach Age Pension Age (currently age 65 and increasing to age 70).

*Assuming your retirement savings are invested at 7%,* and you retire today at age 61 with **$1 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$63,000**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 70). **$52,560**(indexed) a year until the age of 100 (which includes a part Age Pension entitlement from the age of 75).

*Assuming your retirement savings are invested at 5%*, and you retire today at age 61 with **$1 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$55,120**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 68). **$44,250**(indexed) a year until the age of 100 (which includes a part Age Pension entitlement from the age of 71).

### Single person – retiring at age 65

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 65 with **$1 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$69,440**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 73). **$55,625**(indexed) a year until the age of 100 which includes a part Age Pension from the age of 77).

*Assuming your retirement savings are invested at 5%*, if you retire today, at the age of 65 with **$1 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$61,600**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 71). **$47,325**(indexed) a year until the age of 100 which includes a part Age Pension from the age of 74).

### Single person – retiring at age 67

*Assuming your retirement savings are invested at 7%,* and you retire today at age 67 with **$1 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$73,560**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 74). **$57,450**(indexed) a year until the age of 100 (which includes a part Age Pension entitlement from the age of 78).

*Assuming your retirement savings are invested at 5%*, and you retire today at age 67 with **$1 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$65,700**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 73). **$49,130**(indexed) a year until the age of 100 (which includes a part Age Pension entitlement from the age of 75).

### Single person – retiring at age 70

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 70 with **$1 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$81,440**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 76). **$60,650**(indexed) a year until the age of 100 which includes a part Age Pension from the age of 80).

*Assuming your retirement savings are invested at 5%*, if you retire today, at the age of 70 with **$1 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$73,640**(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 75). **$51,965**(indexed) a year until the age of 100 which includes a part Age Pension from the age of 78).

**Note:** The $1 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see article Retirement: Today’s dollars, and why $1 million can’t last forever

## $1 million retirement: assumptions used in text and in Tables 1 and 2

*Assumptions: **The amounts listed in Tables 1 and 2 assume that the money is retained in the super system and that you pay yourself a super pension (from a pension provider or from your self-managed super fund). By retaining your money in the super system, the earnings on your savings are exempt from tax, and the income payments that you receive from your super pension are tax-free.*

*The amounts quoted in this article were calculated with the ASIC MoneySmart Retirement Planner using the following assumptions:*

- investment returns are 7 per cent after fees and taxes (that is, re-invested), investment returns are 5 per cent after fees and taxes (that is, re-invested), on the account balance of a superannuation pension, which means the fees boxes are set at zero in the calculator.
- the investment return is manually set under ‘other’ at 7% or 5% respectively, when using the Retirement Planner.
- Inflation and cost of living adjustments are set at 3 per cent rather than 3.5 per cent (which is the standard assumption).
- Money lasts until age 87, or age 100, or whatever age I specify in the text
- No money is spent in year one before commencing retirement income stream, and assume holds $25,000 in personal assets (including car), and that you have paid off home.
- Age Pension entitlements are included in annual retirement incomes.
- Individual retires at age 65, unless I specify otherwise in the text, such as age 55, 61, 65, 67 and 70.

Hi Trish,

I have “plugged” your figures and assumptions in to the ASIC Retirement calculator and the results are substantially less than you have indicated. Have you re-tested these calculations with the current ASIC calculator?

Hi Robert

Thanks for your email.

We use slightly different assumptions (which we disclose at the end of the article) to the ASIC default assumptions, so the results will be different. We do this to ensure our calculations reflect returns after fees, and to ensure that we can track other websites that illegally copy our articles (unfortunately this happens). Great news that the article has prompted you to use the calculator.

You do mention that you used our assumptions – the ASIC calculator automatically deducts a lump sum on retirement (which I remove), which dramatically changes the calculation – you have to manually do this, once you go into results, and keep on clicking until the ‘spending in year 1’ pops up. You also have to manually put fees to zero and even when you go on the ‘How it works’ page, this sometimes defaults as well. You also need to check the investment return which has to be manually changed to 5% and 7%, and then double-checked because it can revert to the default.

I will check the figures again, although the fiddly aspects to the calculator (if you change the default assumptions) can make it confusing.

Regards

Trish

So if I retired at age 65 with $1million @7% and drew $79k pa (indexed) until age 87 I presume the balance would be decreased to zero. Is that correct?

Hi Mike

Thanks for your question. Yes, that is the assumption for the table that I have created. The individual would then rely only on the Age Pension from age 88, at that income level. You can use the ASIC calculator to change any of the assumptions, including having your money last longer (but at lower income levels).

Regards

Trish

Dear Trish what is nick bruining referring to when he says if you tick all the boxes before tomorrow 27 February and you retired before 2009 you have the opportunity for the $76000 ? Sincerely john kemp – this was broadcast on the Geoff Hutchinson abc morning programme ?

Hi John

He is referring to the Age Pension bonus – you can find more information by clicking on our article – http://www.superguide.com.au/how-super-works/goodbye-pension-bonus-hello-work-bonus

Regards

Trish

What will the proposed change to franking credits cost the government in terms of increased superannuation payouts as the result of lost franking income?

Thanks for the excellent articles and information. Told me exactly what I wanted to know and alerted me to the fallacy of believing that my capital would not diminish over time.

Will $950000 be enough to retire on?

My wife is 59 and wants to retire next year at 60 and I am about to retire this month.

We own our house and vehicles and have virtually no debt except utilities. Our electricity is covered by substantially by our solar panels, hence only a few outlays- rates,food, clothing, registration / car insurance.

Regards

Ken

Hi Trish,

I am turning 65 in August. My husband is 66 and receiving a part aged pension. If I wish not to apply for a pension at 64 1/2, do I have to advise centrelink of the amount held in my super account before August?