1. Hi Trish,

    Thank you for the article. I understand the impact of inflation in retirement, but I’m still confused with retirement planning 25+ years out. If one wants an after tax income of 100,000(in todays dollars) to age 85, assuming 3% inflation, what do you need to have saved by 65 (2045) with 5 returns thereafter.

    We are actively salary sacrificing hoping to have a high balance at 40 that will enable a transition to part time/less stressful work, allowing compound interest to increase super savings. Problem is, I can’t figure out what the balance should be at 40 if we then only contribute modest sums to super. It seems this goes against advice of some planners who advocate waiting until your mid 50s to contribute maximum super, but we don’t want to be working full time in our 50s/60s. I’m very conservative and figure if we have a house paid off and a high super balance at 40, we should be able to sleep easy at night! Both of our parents are struggling in retirement and we are trying to heed their advise and plan early.



  2. Bert born 1930 says:

    LoL Do you really think an 85 year old will be flying off to Bali every year ? Or renewing their $1500pa gym membersahip ? buying $200 reeboks ?? As you get older your expenses DECREASE. All these $1,000,000 retirements are promoted by greedy interests

  3. This and related articles appear to assume that an annual draw of 4% will continue for life. Of course, to remain compliant, a superannuation fund must distribute a minimum percentage of the account balance each year, which increases over time, from 4% at age 55 to 14% at age 95 and beyond. Surely a much higher starting balance is required to achieve a reasonable income after age 80, when the minimum draw increases to 7%.

    • @ David . Your right the draw downs increase from super as you age that doesn’t mean you have to spend it. The 4% SWR is based on your spending rate. The extra money withdrawn can be reinvested outside super the tax free thresholds are pretty generous at 65 the SAPTO allows 59k tax free for a couple outside of super.

  4. Dear Trish

    Graeme Walker’s comments seem spot on to me, in particular that lifelong needs are unpredictable and the further out we plan, the more uncertain those needs become. That’s why the ASIC calculator builds in an extra bit of ‘inflation’ on top of simple cost of living (CPI).

    Based on my experience in looking after my very elderly parents’ finances, the cost of living can really increase significantly in your 80s and 90s. Medication, more frequent doctor’s visits that cost more if required at home, and possible nursing home fees (including bonds) push up costs in your final years. While most people may not need to go into a nursing home, if you do, then a ‘comfortable’ lifestyle of a quiet residence, a pleasant room of your own, nicer food, onsite physiotherapy and podiatry may require you to pay for an ‘extra services’ facility with much higher fees.

    If you have money to spare, it may be worth discussing these issues with children or potential heirs and carers so they realise that your home may have to sold or your capital may have to be used up if you need to go into care.

    • Hi Michael
      Many thanks for your contribution to the discussion. The articles are merely conversation-starters and prompts for readers to do their own calculations regarding their lifestyle needs. For example, some readers believe I am too conservative with my assumed investment returns. Other readers want the tables recalculated without Age Pension entitlements.
      I also use different assumptions to ASIC, as a means to protect the copyright of our articles.
      In response to your comment about the further out you plan, the harder it is to plan, I definitely agree, and these projections and plans should never be set in stone.
      A further complication, especially for couples relying on a part Age Pension, is if one member of the couple dies, then the Age Pension entitlement is often dramatically reduced due being subject to the single person’s assets test.
      In relation to the assumptions that I use, I am trying to provide as much information as possible without loading it with complexity, and I disclose the assumptions so readers can adjust the assumptions for different scenarios.
      In a future version of this article, I will include ASIC’s 4.5% indexation, alongside my 3% indexation.

  5. Hi Trish

    I have some doubt about the answer to the second reader question at the beginning of this article. Question 2 states in part “..I generate $140,000 (at 7% p.a.) …only withdraw $100,000 p.a…..”. The ASIC answer states that the reader is earning 4% p.a. in real terms but is taking out 7%. Clearly $100,000 is not 7% of $2m so the answer doesn’t seem to match the question.


    • Hi Bruce
      Thanks for your email. Yes, I agree that is a clarity issue, which is due to expression rather than mathematics. I have amended the text slightly to say that return in real terms is 4% but the amount being withdrawn is more than 4% in real terms each year. The point of the comment from ASIC was to indicate that an indexed income stream increases each year in line with inflation, which means the money withdrawn in these circumstances eventually overtakes the returns at this level.

  6. Darryl Smith says:

    Hi Trish,
    I hope you can assist me.
    I have my own SMSF & retired several years ago.I just turnt 65 & i am about to become into a inheritance of $57000.
    I realise that I must pass the work test of working 40 Hrs within a 30 day period prior to putting this money into my super Fund.
    I would put it in as a non deductible contribution.
    Does this amount count towards a maximum of $450,000 over a 3 year period(assuming I pass the work test for the next 3 years)
    The reason I ask you this is,that I have 2 Property investments worth approx $800,000.
    To save on CGT,I would like to Contribute the maximum I can as deductible contribution
    Can you please assist
    Kind regards

  7. I make the following comments:

    (1) The essential, real-life costs – food, insurances, registrations, energy, to name but a few – for those who are retired increase far more than the mythical CPI so a doubling factor in any calculation for future funding is mandatory.

    (2) As a retiree gets older, health costs for those that wish to care for themselves increase significantly.

    (3) Only the well-off self-funded retirees can really afford the overseas trips; for me, having done all that – 5 star hotels, flying around the world, etc – during my working life my focus is now on 1 and 2 above.

  8. Terry Wenban says:

    After further thought this is an over simplification as it assumes everything you spend money on will rise with inflation and this is not the case. Many items have decreased in cost like imported goods, my golf membership, motor vehicles, overseas travel etc. So the only inflationary items are food and utilities and you can even reduce these with solar panels and changing habits to contrl the cost.
    Changing buying habits is the one factor economists don’t take into account when creating these comments and theories. This is the difference with the baby Boomer generation in that we have no issue with doing this as our priorities are different and we know what it is like to do without.
    So I would dispute this as it is very conditional and most probably written by a Gen X who doesn’t know what it’s like to make changes backwards.

  9. Hi Trish,
    Great article, got people thinking. I have read quite a bit your books/article included, I have read other views from those who profess such knowledge and have been to a range of seminars. Many views are conflicting and I am starting to believe that since the IFC noone really can offer authentic planning proposals it’s like the sea it will come and go as pleases and is often full of surprises even to the most experienced sailor.

  10. Terry Wenban says:

    I understand the figures produced and why the 1million wont last forever but inflation may not run at 3% nor may you be able to obtain 7%. With the way the world economies are running now all economists are more or making “guesstimates” of what they feel will occur. Somethings have run a lot higher than 3% and others have not risen at all plus the biggest contributing factor missing is that as you get older your lifestyle changes depending on how active you are and your previous lifestyle. I have already travelled the world with over 30 oversseas trips so travelling is still on the cards but not to the extent as others that have not already done so.
    So my point is every person is different, depending on your previuos lifestyle will depend how much inflation effects you. I have basically lived off the same income level for nearly 30 years now and changed my habits more than anything else. We have the 1 million, no debt and I would rather go earlier while we still have our health and maybe when 75 do the cut backs then when we are not so mobile.
    Liked the article though but the comonists of the world today are not doing such a good job predicting anything right now and I would rather depend on my own devices for the outcome rather than rely on someone else who has their own agenda. I wish it was different but who can you really tryst after the GFC.

  11. It is all true but as you get older, how much can you spend at age 80?

  12. Using some elderly relatives as an example, I noticed that their definintion of comfortable living changes as they get older. Eg. between 80 & 90, overseas travel has reduced, over 90, no overseas travel and less local / interstate travel. Luxury cars / goods are not important as they get older because most times they are unable to utilise them.

    The most important thing is good health and friends / family.

    My point is that although the cost of living increases, their requirement of certain things reduces so they probably negate each other. The $’s required in the later years can be reduced!

  13. Graeme Walker says:

    I have been following your discussion on retirement with $1M, $2M etc. but speaking from long, experience I would point out that several very important facts have been overlooked in all the suggested calculations. I am a retired financial adviser who retired at age 70 and am now 78. I advised clients on retirement planning for some 26 years.
    Firstly, when planning some 30+ years ahead you have to consider the cost of lifestyle changes which are not even in existence at day one. Just think about, for example, the cost of computers and internet usage for someone retiring 30 years ago! As a rule of thumb, I believe a retiree has to budget for double the expected CPI. e.g. if you expect inflation of 3% then budget for 6%.
    The next important factor is changing major expenses. Currently I plan a very comfortable oveseas trip each year but I know that at some point my health may not allow for this, so this would be a saved expense. There will come a point, if I live long enough, when I will not be able to drive a car – a very substantial saving which will be partially offset by increasing use of taxis.
    Although fully self funded, I can allow for the fact that if my capital falls significantly, a threshold which is continually changing, I just might become eligible for an Age Pension which would start to bolster my investment income.
    Then there is the question of what investment return do you use for budgetting. Based on my portfolio structure I budget for an average 8% return but we all know this could range from -20% (or more) to +20% or more in any one year.
    I have developed my own calculator which takes into account as many of these factors as possible and looks 20 years ahead. Each year I reset the starting point based on my then current assessment so I can now have an estimate of my position at age 98. However, if anyone thinks they can allow for all these factors at age 60 and budget for 40 years ahead I am afraid they will have a few surprises in store!

  14. Hi Trish thank you for this article. Many online calculators assume 7% returns over the long term, as in the one you use. That looks comfortable based on the last two decades, but the next two decades? The mountain of debt that hangs over the world economy makes me doubt it. I make my own long term calculations based on 5% and worry that even that may turn out to be optimistic. On that basis, when I look at what I’ll be earning when I’m in my eighties it doesn’t look so great. Then I think of how much money my parents and their parents had and realise I’ll be living like a king compared to them. My grandparents, who died in the 50s, 60s and 70s actually felt grateful that the government gave them a pension. Riches at last!

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