Setting a retirement target: Living on more than $59,000 a year

Note: This article is updated every 6 months with the latest lifestyle/income data. The most recent data was released in February 2016 (for lifestyle costs up to December 2015) and includes March 2016 Age Pension rates (which apply until September 2016). The tables in this article list lump sums needed to finance a retirement of 22 years, or 35 years, which remain applicable whether you retire at age 65 (assuming you have reached Age Pension age, if relying on a part Age Pension), 67 or even 70 years of age or older.

If you opt for a lower investment return during retirement, then you will need a larger lump sum when you start retirement. Due to reader demand, we have included additional figures that list the lump sums needed on retirement if your super/investments return 5% a year during retirement (see Table 1), as well as if investment returns are 7% a year (see Tables 1 and 2) during retirement.

The most popular question about superannuation and retirement planning is, without doubt: How much money is enough?

A glib response to this question may be: Enough money for what? From the many times, though, that I’ve been asked this question, I know that when most Australians ask it, they really want to discover the answer to: How much money do I need in retirement to maintain (or improve) the lifestyle I currently have until the day I die? For some Australians, the question also includes: ‘And to leave enough money to help my family after I’ve gone?’.

The AFSA Retirement Standard reports that for a couple to live a ‘comfortable’ life in retirement you will need an income after tax of just over $59,000 a year in today’s dollars (while a single person needs an income of just over $43,000 a year in today’s dollars).

The definition of ‘comfortable’ under the ASFA Retirement Standard is fairly specific, and your idea of comfortable may cost a lot more than $59,000 a year, which means for a significant minority of Australians, the prospect of living on $59,000 a year in retirement isn’t what they had in mind. (For information on what type of ‘comfortable’ life you can expect on $59,000 a year, see SuperGuide article How much super do you need to retire comfortably?).

A common belief is that if you want to live on more than $59,000 a year then it will not be possible to claim the government-funded Age Pension. Not necessarily true, at least until December 2016. From 1 January 2017 however, the Age Pension assets test becomes a lot stricter, which means Australians with significant assets will miss out on a part Age Pension, even though they may have been eligible for a part Age Pension before January 2017.

From January 2017, rather than losing $1.50 of Age Pension for each $1,000 over the full Age Pension asset threshold, a retiree will lose $3.00 of Age Pension for every $1,000 over the threshold (for more information on the Age Pension changes see SuperGuide articles Latest retirement deal! Lose Age Pension, receive Seniors Health Card and Age Pension: 300,000-plus Australians lose entitlements from January 2017).

Retirement alert!: Both political parties (ALP and the Liberals/Nationals) intend to introduce a cap-of-sorts on the amount of tax-exempt pension earnings that can be generated from a super pension account. From July 2017, depending on which party wins the 2016 Federal Election, if you have substantial assets in pension phase, you may have to pay 15% tax on some of your pension earnings. A proposed tax on a certain level of pension investment earnings will affect the amount of savings you will need to fund a higher-income retirement. For more information on this proposed change, see SuperGuide article 2016 Federal Election update: What superannuation and retirement policies can you expect? and more specifically, see SuperGuide articles Liberals to impose $1.6 million cap on pension start balances and ALP to tax pension earnings above $75,000 a year, if wins election.

Continue reading to find out how much money you need to accumulate to enable you to finance a ‘cushy’ lifestyle.

Wanting a ‘cushy’ lifestyle

Your own answer to the question, ‘how much money is enough?’ depends on four main factors:

  • Income expectations. Level of income that you hope to receive each year, that is, your lifestyle expectations.
  • Life expectancy. How long you expect to live, that is, the years that you spend in retirement.
  • Investment returns. Investment returns you can expect to receive on your superannuation pension account in retirement.
  • Work plans. Whether you intend to continue working and/or contributing to your super fund in retirement.

The ASFA Retirement Standard indicates that you need just over $59,000 a year (that is, $59,236) in income for a comfortable retirement as a couple, or just over $43,000 a year (that is, $43,184) as a single person. Alternatively, as a couple you can enjoy a modest lifestyle on an income of roughly $34,230 a year, courtesy of the government-funded Age Pension. As a single person, you can enjoy an income of around $24,000 a year with minimal savings and a government-funded full Age Pension.

Many people are relieved to finally know what target they need to be working towards in terms of retirement savings. For some Australians however, a ‘comfortable’ lifestyle isn’t what they had in mind. They were hoping for a ‘very comfortable’ life or even a ‘lavish’ lifestyle when compared to the comfortable life that you can live on when receiving just over $59,000 a year as a couple, or just over $43,000 a year for a single person). (I explain the ASFA Retirement Standard and the lump sums necessary to deliver $59,236 a year in retirement in the SuperGuide article How much super do you need to retire comfortably?).

If you fall into the ‘wanting more than $59,000 a year’ category then you’re probably seeking information on how much super is needed to finance much higher income levels.

The general rule when planning for retirement is: If you want a similar lifestyle to the one that you’re enjoying during your working life, you need a minimum of 60 to 65 per cent of your pre-retirement income in retirement. For example, if you live comfortably on $60,000 a year and you want a similar standard of living in retirement, you probably need an income of at least $36,000 to $39,000 a year. If your pre-retirement income is $120,000 and you want to maintain that lifestyle, then you probably need at least $72,000 to $78,000 a year.

Note: Generally, the lower the investment return that you can secure on your savings during retirement, the larger the lump sum needed when you start your retirement. Conversely, the higher the investment return in retirement, the smaller the lump sum needed when you retire. If your target is a higher investment return, then you generally have to take more risk with your investments to deliver that higher return.

Important: The earlier you retire, the larger the lump sum you will need on retirement to finance your lifestyle during a longer retirement. The later you retire, the smaller the lump sum you will need on retirement to finance a shorter retirement.

Age Pension eligibility: Unlikely at higher income levels, until later in retirement

The MoneySmart retirement planner calculator now takes into account the January 2017 changes to the Age Pension assets test. The biggest difference between now and January 2017 is that most Australians seeking higher retirement incomes (using substantial superannuation assets) will no longer receive a part Age Pension, or will receive a much smaller Age Pension payment. For more information on asset levels affected by the new Age Pension assets test, see SuperGuide article Latest retirement deal! Lose Age Pension, receive Seniors Health Card.

IMPORTANT: Since 1 January 2015, new superannuation pensions are treated differently under the Age Pension rules. This change is likely to affect the lump sums you will need on retirement. The lump sum amounts in the tables DO take this change of treatment into account. If you super pension is subject to the pre-January 2015 rules, then your Age Pension entitlements are likely to be higher than what is outlined in this article. For more information on this change see SuperGuide article New income test rules mean less Age Pension.

I have created two tables for this article:

  • Table 1: Living on more than $59,000 a year (No Age Pension).Table 1 lists the lump sum amounts that you need when you retire. You then need to invest these lump sums on retirement (or a super pension fund does the investing for you) to deliver you certain levels of retirement income, assuming you receive no Age Pension. Due to reader demand, we have added additional columns in the table to cater for those readers who will be opting for more conservative investments (long-term return of 5% per annum) in retirement, as well as catering for readers seeking long-term investment returns of 7% per annum.

Note: If you’re intending to invest your retirement monies in investments that deliver investment returns over the long term of 5% per annum, rather than, say, 7% p.a. then you need to accumulate a lot more money for your retirement (for how this may work, compare the figures in Tables 1 for the same income levels).

Important: Although it is unlikely that many Australians will have accumulated more than $2 million in super, the tables below include lump sums exceeding these amounts to demonstrate the substantial amounts necessary to save for retirement if you wish to have a very high standard of living, and you wish to invest your savings in low-risk assets returning 5% a year. Note also that from July 2017, depending on which party wins the 2016 Federal Election, if you have substantial assets in pension phase, you may have to pay 15% tax on some of your pension earnings. Refer earlier in this article for more information on this proposed change. For those with substantial pension account balances, the imposition of earnings tax on pension earnings, will mean that wealthier retirees will need to reduce income expectations, or allow for a larger nest egg on retirement.

Warning: The longer you live, the more money you’re going to need. Alternatively, you can just accept a lower standard of living in retirement. On average, women need to save more because they live longer than men.

The two tables below list the lump sum amount of money you need invested on retirement to finance a super pension at higher levels of income. Scroll down the page to reach the tables or click on the bullets below.

Table 1: Living on more than $59,000 a year (indexed) (No Age Pension)

Table 1 assumes a person retires at age 65 or age 67, and the money lasts 22 years (lasts until 87 or 89), or lasts 35 years (lasts until age 100 or 102). In Table 1, the lump sum amounts shown assume no Age Pension, but a couple seeking income levels up to $100,000 can expect some Age Pension entitlements although it won’t be until the later years of retirement at such high income levels. The lump sums are calculated using the ASIC MoneySmart Retirement Planner.

See Table 2 later in the article for the lump sum amounts required if you’re eligible for a part Age Pension.

Table 1: Living on more than $59,000 a year (indexed) (No Age Pension)
Annual Income (Tax-Free Income from Super)Lump Sum Needed if Money Runs Out at Age 87 or 89 (22 years)Lump Sum Needed if Money Runs Out at Age 100 or 102 (35 years)
 5% return7% return5% return7% return
$50,000$937,000$775,000$1.35 million$990,000
$55,000$1.03 million$850,000$1.48 million$1.09 million
$59,000$1.11 million$910,000$1.59 million$1.17 million
$60,000$1.13 million$930,000$1.61 million$1.19 million
$80,000$1.5 million$1.24 million$2.15 million$1.58 million
$100,000$1.88 million$1.55 million$2.7 million$1.98 million
$150,000$2.81 million$2.32 million$4.03 million$2.96 million
$200,000$3.75 million$3.1 millionSee note 1$3.95 million
Note 1: Due to the minimum pension payment requirements of an account-based pension, the account balance required to fund retirement incomes until age 100 (that is, to last for 35 years) when money is invested at 5% per annum (and no Age Pension entitlements) at the $200,000 income level, results in individuals being required to withdraw more than the annual income required. See a financial adviser to work out the balance of super and non-super savings required to fund your retirement in these circumstances.
Note 2: For couples, Age Pension entitlements (if any) may be available in the later years of retirement for the lower and mid-range income levels. At lower levels of income, you may be able to claim a part Age Pension at age 65 (or age 67 if that is your Age Pension age) as a couple, or as a single person, depending on your asset levels (see Table 2 for the impact on lump sums required when Age Pension entitlements are taken into account).
Note 3: Due to the proposed changes to the tax treatment of pension earnings (ALP), or a cap on the amount that can be transferred to pension phase (Liberals), anyone seeking a retirement income of more than $60,000 a year (depending on investment return, and years in retirement), will need to consider saving a much larger amount or consider non-super savings strategies as well. SuperGuide will update this article, once any proposed change to super pension rules become law. For more information on the proposed changes, refer earlier in this article.
Source: Lump sum amounts are calculated using ASIC’s MoneySmart ‘retirement planner’ calculator. Calculations assume 5 per cent return net of fees, or 7 per cent a year return net of fees, on the account-based income stream account balance, and returns are reinvested. The annual income from the account-based income stream is indexed by 3 per cent a year. Retirement age is 65 years. If retire at age 67 years, then money lasts until age 89 (22 years), or age 102 (35 years) respectively. Likewise if you retire at age 70, then money lasts until age 92, or age 105 respectively. Assume no Age Pension for amounts listed in Table 1. 

Table 2: Living on more than $59,000 a year (indexed) (with part Age Pension in some cases)

If you earn 7% a year on your savings (rather than 5% a year) during retirement then you will need less money when you start retirement and you can expect a higher part Age Pension, if applicable.

UPDATE:  The MoneySmart retirement planner calculator that we use for this article, now takes into account the January 2017 changes to the Age Pension assets test. The biggest difference between pre- and post-January 2017 changes is that most Australians seeking higher retirement incomes (using substantial superannuation assets) will no longer receive a part Age Pension, or will receive a much smaller Age Pension payment. For more information on asset levels affected by the new Age Pension assets test, see SuperGuide article Latest retirement deal! Lose Age Pension, receive Seniors Health Card.

Even so, those couples seeking higher incomes in retirement who miss out on Age Pension entitlements, may secure a small part Age Pension in the later years of retirement, rather than immediately, which could reduce the retirement lump sum necessary.

Eligibility for the Age Pension then means you need fewer savings in retirement. I discuss the Age Pension in more detail in other articles on the SuperGuide website.

Table 2: Living on more than $59,000 a year (indexed) (with PART Age Pension in some cases) (investment return of 7% p.a.)
Annual Income (Tax-Free Income from Super)Lump Sum Needed if Money Runs Out at Age 87 (22 years)Lump Sum Needed if Money Runs Out at Age 100 (35 years)
 SingleCoupleSingle Couple
(pAP age 68)(pAP age 65)(pAP age 81)(pAP age 65)
$55,000$700,000$325,000$1 million$465,000
(pAP age 72)(pAP age 65)(pAP age 85)(pAP age 65)
$59,000$785,000$420,000$1.09 million$650,000
(pAP age 74)(pAP age 65)(pAP age 87)(pAP age 65)
$60,000$805,000$425,000$1.11 million$705,000
(pAP age 74)(pAP age 65)(pAP age 87)(pAP age 65)
$80,000$1.17 million$980,000$1.54 million$1.42 million
(pAP age 80)(pAP age 70)(pAP age 93)(pAP age 83)
$100,000$1.5 million$1.4 million$1.95 million$1.88 million
(pAP age 82)(pAP age 76)(pAP age 95)(pAP age 89)
$150,000$2.3 million$2.25 million$2.95 million$2.92 million
 (pAP age 85)(pAP age 82)(pAP age 98)(pAP age 95)
$200,000$3.07 million$3.05 million$3.94 million$3.92 million
 (pAP age 86)(pAP age 84)(pAP age 99)(pAP age 95)
pAP = part Age Pension from age X (or count back from your Age Pension age, if higher than 65 years)
ALERT: Table 2 now takes into account the stricter Age Pension assets test taking effect from 1 January 2017. See explanation in text before Table 2.
Note 1: Since 1 January 2015, super pensions are subject to deeming rules when assessed for Age Pension, except for those subject to the old rules. The table above is based on the new deeming rules for super pensions (see SuperGuide article Start planning! New income test rules mean less Age Pension). The old rules still apply to those retirees who were existing Age Pensioners with existing super pensions as at 31 December 2014. For those treated under the old rules, pension payments for Age Pension purposes are assessed differently from other type of income because some of that pension payment is considered a return of capital so that Centrelink doesn’t double count the drawing down of pension assets as income. There is a special formula to work out this income amount for Age Pension purposes. New Age Pensioners from 1 January 2015 onwards are subject to the new deeming rules.
Note 2: All scenarios assume you own your own home and you have personal assets (such as car, furniture etc) valued at $25,000. The figures in Table 2 look at the retirement phase from age 65 to age 87, and from age 65 to age 100. The figures in Table 2 also apply if your Age Pension age is higher than 65 years: for example, if your Age Pension age is 67, then you can apply the figures in the table but just add 2 years, so retirement phase from age 67 to age 89, and from age 67 to age 102. For more information on how the Age Pension rules work see SuperGuide article Age Pension: More Australians entitled since September 2016, but lose from January 2017.
Note 3: Due to the proposed changes to the tax treatment of pension earnings (ALP), or a cap on the amount that can be transferred to pension phase (Liberals), anyone seeking a retirement income of more than $60,000 a year (depending on investment return, and years in retirement), will need to consider saving a much larger amount or consider non-super savings strategies as well. SuperGuide will update this article, once any proposed change to super pension rules become law. For more information on the proposed changes, refer earlier in this article.
Source: Lump sum amounts are calculated using ASIC’s MoneySmart retirement planner (see article A comfortable retirement: How much super is enough? for table assumptions). In Table 2, calculations assume 7 per cent a year return net of fees on the account-based income stream account balance, and returns are reinvested. The annual income from the account-based income stream is indexed by 3 per cent a year. Retirement age is 65 years, although the table can be applied to a retirement age of 67 years (income lasts until age 89, or age 102), or a retirement age of 70 years (income lasts until age 92, or age 105). The stricter Age Pension assets test, taking effect from January 2017, has been allowed for in the ASIC calculator.

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  1. Peter H. says:

    Thanks Trish, an interesting and helpful article. But I would question using rate settings of 5% or 7%. I’d like to see you add a return rate of 3.0%. The feedback I have is that the current global low interest environment will be with us for (potentially) the next couple of decades – NOT years. The Fin Planning industry continues to struggle to come to terms with the entrenched low rate environment. Equally, current and approaching retirees also need to rethink strategies, for low rates. As all the research will tell, the only way retirees (current or approaching) can increase returns is to adopt a greater risk appetite and perhaps accept placing capital at risk of loss. Seems a poor choice when you may not have sufficient time to replace the lost capital. So I’d like to see more focus on low rate / low risk options. What are the options or alternatives. What am I considering??: Delaying my retirement by a couple of years, saving like crazy to increase my retirement savings, taking a marginal increase in risk with some exposure to blue chip fully franked shares and making sure my children understand they should NOT be looking for me to leave then vast sum when my times is up (I’ll need it to live on). And for my other funds, I just accept a return of around 3.0% is probably the best I will do and keep it short to try and gain a better yet low risk return. Its a weird world !! Cheers

  2. The conversations around how much money is required for a comfortable requirement seem to overlook the obvious that discretionary spending essentially peaks and then subsides to a much lower level as lifestyle changes. My observation of many active retirees is that they use the first five to ten or so years of retirement to travel, renovate/downsize, update cars and whitegoods etc. After this period however the discretionary spending progressively falls to much lower levels so that the most income is directed to spending on essential items. So why don’t the models adjust for the changing income requirements to match the changing lifestyles? It does not mean you have to fund $100k each year in your 80s or 90s if you want to spend say $100k for a couple of years while in your 60s or 70s. Indeed in some of those years you may only spend a fraction of that amount while planning the next big adventure. Most people only do the bucket list once.

    • Brain,

      What you are describing is much like “Bernicke’s Reality Retirement Planning”. I agree in part with this, however, although in later years retirement spending on many items will reduce spending on health usually increases – sometimes markedly in our last few years.

      To come up with a more realistic spending model requires you to have a detailed plan for your retirement, something that is both quite difficult and instantly out of date. Indeed you would really have to do scenario planning and come up with a range of spending models to cover diverse possible futures and analyse all these models to find the different starting lump sums.

      To complicate matters further, a constant return figure (which most of these calculators use) is totally unrealistic. Even if you knew the average return over sat 20 years, applying this average is also unrealistic.

      Many years ago, in the days when super was much more complicated that it currently is and before I realised how futile it all was, I created a monster spreadsheet that did many of these things. It was interesting but even with all its complexity it could not predict the future so (as I said) it was futile. One thing that it did show was that the then fantastic returns were totally unsustainable.

      Nevertheless, you can play with a few calculators that are a bit more sophisticated and take into account some extra variables. I would recommend Firecalc (use google) and the TelstraSuper Super Simulator with the “stress testing” option. Of the two Firecalc offers the most flexibility and the prettiest output.


  3. Bipin Sharma says:

    Some great articles at your site and explained very well for people with varying degrees of financial understanding.

    I know some people get critical about some of your advise however what a lot of readers do not realise is that retirement planning can only be planned so much, as most if not all of the variables used in the science of determining numbers are highly dynamic. For example you can talk about ‘if you live til past 80 and in really bad health’ or you are ’75 and unexpectedly get divorced’ or if you are ’67 retired for two years and have a car accident that kills someone and you end up in jail til age 75′. I think you get my point hence I like the way you keep your examples simple for the run of the mill scenarios. Nice work!!!! I am 55 and for the last 10 years I spend two hours everyday doing something tangible regarding my retirement planning. I feel I am so on top of it that sometimes it scares me that I may be missing something very obvious hence I use a different financial planner every 2 years to use more so as a sounding board. I will be a regular to your site now and my advise to readers is to become very tech savvy in order to stay on top in the information age we live in now.

  4. Karen Dawson says:

    Can you please give some advice for women who have divorced and had to go back to work and who have no where near enough super by the time they are in their 60’s to retire on a ‘modest’ lifestyle. I have less than $100 in super and already 61 and no hope of working for many more years to accrue anything like 400-500k. There are a lot of women like me who are in the same situation. We would really like some advice and help as to what we can do for our retirement to ensure that our lifestyle is at least modest.
    thank you

  5. I think that this website now needs updating. The news rules passed in parliament now sees single people with a super balance of $547,000 not able to receive any pension. This will make a substantial difference to the incomes of this group of people. Will you be able to review the information?

    • Hi Fran
      Thanks for your comment. We are waiting for ASIC to update its MoneySmart calculators to incorporate SG increase changes, and recent increases in Age Pension rates and thresholds which is why this article has not been updated for over a year.
      When the ASIC calculators we use for compiling the tables are updated, we will update this article.
      Also, the changes announced by the government in May 2015 do not take effect until January 2017, and are not yet law. On this particular change, the calculators will not be updated until a change becomes law.

  6. Karin Wheeler says:

    I found this information very helpful, thank you.

  7. Hi Trish,
    Thanks again for running such an informative site.
    I’m puzzled at the use of 5%-7% as a benchmark for investment return. My bog standard super fund has never produced a personal return of less than 10% and last year returned 19%. I see my super balance go up by the same amount as the personal return rate, so it does not appear to be smoke and mirrors reporting. Am I missing something?

    • Robert Barnes says:

      Hi Steve
      Thanks for your comment. The long-term return of a super fund over the past 22 years is just over 7%, and some years were negative and some were positive. If you are in one the larger super funds, yes, the past couple of years have been double-digit returns but I recall 2011/2012 year was 0.5%. I included 5% scenarios because some readers believed my 7% a year was too optimistic especially in retirement. Note that the lump sums are based on investment in retirement, and many people do choose to invest in more conservative assets.
      Hope this explanation helps

  8. If I am a chook farmer and I can survive on a diet of eggs, then as long as the chooks keep laying their eggs I will have enough to live on and it will not matter how long I live. Similarly, if I grow apples in my orchid, and I can live on a diet of apples (or I can sell sufficient excess apples to buy other things), I am set for life. The required size of the orchid is set by my income needs; not by the length of time I expect to live (in retirement or otherwise).

    So why does this article suggest that I need more money if I expect to live longer? This assumption only makes sense if I am selling assets to fund my retirement needs – which is, of course, exactly what happens if I am funding my retirement in a retail super fund. In this case they are selling my units in the fund every time a take a pension.

    The length of time it takes to sell all of my units depends on how many units I had to start with, how fast the unit price is growing (because I need to sell fewer units as the price rises and I need to sell more as the price falls) and how many units I am selling with each pension payment (or how quickly I am drawing down on my savings). Clearly it is only a matter of time before all the units are sold.

    But if I have sufficient capital to generate sufficient income I do not need to sell any capital – ever. If the capital (and associated income) grow at least the same pace as inflation I still do not need to sell any assets – ever. So it does not matter how long I live because I will not run out of money.

    If I have a portfolio of properties generating $60,000pa after maintenance costs and after taxes then it should be able to keep me (and my heirs) in sufficient income in perpetuity. But it would need to be a large portfolio of properties because the after cost, after tax yield on property is quite low.

    I prefer to use Australian shares inside a SMSF because the after costs yield is higher, Australian shares have tax advantages that property does not and a super pension fund has tax advantages on top of that as well. In fact the shares in my SMSF consistently pay 7% after-tax yield. Therefore, I need $8600,000 to generate enough income and that income increases yearly as company profits increase.

    Most important, because I do not need to sell anything, the volatility (risk) of shares has no impact on me.

    People who follow this strategy find they end up with more money, not less, and their yearly income increases as well.

    And yet all the “experts” including this site continue to tell me I am going to run out of money!

    • Ehm… If you are chook or apple farmer at the age of 80 then you haven’t retired. Honestly if you carry on working, eating apples and eggs and have no medical or other bills at the age of 80 then I tip my hat to you.

      If you rent out your farm then that assumes you bought one at some point and now you get a return on your investment.


    • Peter Hewitt says:

      Hi Jack

      I think that you have overlooked a basic premise in your analogy. To understand why your money needs to have regard for life expectancy you need to change two dynamic in your chook farming example. The first is that you are only producing for your own (or family’s needs) and the second is that you are eating your chooks. The chooks are your lump sum. As time passes you have less chooks to produce eggs so you consume progressively less eggs and more chooks until all you have left is feathers!!

      If you were to argue that you don’t need to eat chooks because you always produce enough eggs then, in financial terms, you have more money than you need. The articule is about how much you need rather than how much you have.

      I hope that this has been of some benefit.

  9. Mick Goodwin says:

    Trish, I just stumbled upon your site and just wanted to commend you on it. finally someone will give relevant and meaningful data on a very important and confusing subject. Your other contributors to this forum also ask relevant questions and give very good advice. well done and I will continue to visit and contribute when I can.

  10. Arthur Kingsland says:

    Some things I can’t seem to understand about discussions about how much super is needed…

    Why is the life expectancy relevant? I have participated in some (admittedly naive) surveys and would expect to live well into my 90s, and my partner is likely to live even longer with two close relatives at 92 & 95, and a recent death of an aunt at 97!

    Why not assume that the money should never run out, i.e. that we might expect to get $55,000 from now until eternity? If are both dead at 72 then our estate gets a great windfall. If we both live until 105, then we’ve still got sufficient funds to support what is likely to be an ever increasing health bill.

    Why shouldn’t the financial adviser assume that we need this income (adjusted for inflation) from now until 20-30-40-50 years from now? How long we live should be irrelevant.

  11. what about if you have too much cash e.g/super, and want to leave it to the kids by just living off the interest? how can you still claim the “pension” so that you can get the 30% reduction in bills benefits?? e.g. elec, water, council, car rego etc??
    i dont understand….i’m only 43.

  12. I am one of the lucky ones, so I keep being told, having the option of a life long government guaranteed pension or taking a lump sum or part lump sum, part pension. I was just wondering why we don’t seem to find much information on the net as to what is the best option with this type of self funded retiree.

    I have always thought its best to take the pension, am I right? I Will be turning 57 this month and the Mind wonders, should I retire or continue working?

    Also I have almost 40 weeks long service, is it best to take the time off or wait for a bonus when I retire?

    Cheers Barry

  13. bob amery says:

    For those of you thinking Mr Kalkman’s idea of living on dividends (assuming you’ve got $1m in capital) is a sound one, check out the price falls of these ‘blue chips’ over the last 13 mths. Do you think you’ve got the stomach to sit on those kinds of capital losses, hoping that they’ll continue to pay dividends?

    Stock (ASX Code) Price at 29 April 2011 Price at 20 June 2012 Price change
    Rio Tinto (RIO) $83.37 $57.72 -31%
    Qantas (QAN) $2.13 $1.16 -46%
    Asciano (AIO)* $4.98 $4.40 -12%
    AMP (AMP) $5.54 $3.94 -29%
    BlueScope Steel (BSL) $1.84 $0.33 -82%
    Toll Holdings (TOL) $5.67 $4.15 -27%
    Fortescue Metals (FMG) $6.38 $4.91 -23%
    ANZ Group (ANZ) $24.32 $21.75 -11%
    BHP Billiton (BHP) $46.29 $32.60 -30%

  14. Tomas Finney says:

    When you mention using percentage of pre-reirement income to estimate retirement income needs, are you referring to gross income or income after PAYG tax is deducted?

    • Hi Tomas
      Thanks for your comment. When I refer to 60% to 65% of your pre-retirement income I am referring to gross income. The ASFA Retirement Standard figures however are after-tax figures.

  15. Sandy McQuade says:

    I am 63 and working overseas.
    I have a unit in Cremorne worth about 700,000 which my wife and I own.
    We have about $350,000 in saving with a return of 6.5 % I have the capacity in the next 2 years to save about another $100,000
    I would like to buy a unit in mackay for retirement approx value 300,000 and sell my sydney property and put the rest into a bank with a return of 6.5%.
    If I was to retire what sort of taxes would I have to pay on my monies and finally would I be able to retire on this.
    Apprciate your assistance on this. I could look at buying a unit in Mackay now. The Market looks OK.

    Any other options that maybe better.


  16. I have always wondered about one thing in reports on required income in retirement. Is this post tax income. For example if you have some income coming from superannuation/pension phase and some from Term Deposits outside superannuation and Shares which may be attracting tax do you have to net that out to match yourself against these tables? I think Centrelink adds your superannuation pension to your term deposit etc income when determining government pension eligibility but again I am not sure if they look pre or post tax. It is so confusing.

  17. Bob Amery says:

    Very few of us are as lucky as Mr Kalkman, who has sufficient income to sit out any downturn, which I assume means he thinks he’ll never have to sell any shares or other investments to provide income.

    It’s also concerning that, like many people, Mr Kalkman is myopically focussed on expected returns with little apparent consideration for the risk associated with deriving those returns. For example, the risk that companies won’t suspend or reduce dividends and the risk of dilutative equity raisings such as those of 2007 which slashed dividend per share payouts.

    Also, the statement that his SMSF achieves 15% doesn’t make sense, as the 8% average growth figure is not a cashflow. You can’t eat an average capital gain figure if you don’t sell any investments!

  18. All the discussion around how long $1 million or $2 million dollars will last hinges on the return retirees can achieve on their investments. Your assumption of only 7% income and growth before inflation does indeed mean that it is only a matter of time before the money runs out.

    For most people that assumption is quite valid because they are in a retail or industry super fund which is selling units with every pension payment. Therefore the sale price of these units is subject to enormous volatility. As a consequence, people using these products are strongly advised to hold a balance fund as the best compromise between return and volatility risk. Your experts at ASIC are also making this assumption.

    As I pointed out in my response of 3 November, if I have sufficient income to sit out any downturn, volatility is not a risk that I need to manage. Therefore, I can set my asset allocation to give me the best return in both income and growth. I choose to hold Australian shares because:

    Holding Australian shares inside my SMSF paying pensions means that my income is at least 7% from dividends (5%) and the refund of imputation credits (2%). Assuming that provides sufficient income, the only thing I need to worry about is inflation.

    Dividends depend on company profits not share prices. Company profits grow at an average rate of 8% which is faster than inflation. So if I just live off the earnings of my shares, the income stream should last as long as I do.

    So my SMSF, paying pensions, achieves 15% (7% income and 8% average growth). It begs the question why retail and industry funds have such a low return. It also begs the question why some many people persist with managed funds and their expensive sales representatives (advisers)

    I would hope that a non-aligned expert such as yourself would at least expose your readers to an alternative point of view from the usual – volatility risk – balance fund – low return – longevity risk spiel we get from advisers and the media with a vested interest in keeping clients in managed funds.


    • Thank you Jon!!!!!
      You are the first person to express so well what I have been wondering about. Am just starting an SMSF and wondering what assets to hold… am 51 years.
      I am planning to transfer from my industry super to my own super.
      was thinking of a mix of wholesale managed funds, shares, and some bonds/term deposits.
      After reading your comments, am thinking of reducing the managed funds and/or bonds, and having more in the shares…
      It also makes me wonder about holding a share portfolio outside of super that can supply a modest-comfy income, and retaining it as long as possible. if the shares are fully franked there are advantages for this model outside super anyway. I wonder if Trish has any articles/views on this strategy too. is the transition to retirement option effective if your main income is franked shares?
      Trish, a thousand thanks for your wonderful website and keeping it up to date. Tremendous work and greatly appreciated.

      • It is important to note that imputation credits associated with dividends are tax credits for the 30% company tax already paid on the profits. The dividends shareholders receive are paid out of after-tax profits. Companies that pay tax in Australia generate imputation credits for their shareholders. These tax credits can be used to offset the shareholder’s other income tax liabilities and any unused credits are refunded as cash. Therefore, taxpayers whose marginal tax rate is less than 30% may get a refund for the tax already paid on their behalf. Taxpayers on a higher tax rate may need to pay extra to make up any shortfall.

        The attraction of superannuation is the tax incentives it provides and super funds are separate taxpayers.

        In accumulation phase the super fund, pays 15% tax on the fund’s income and tax-deductible contributions such as salary sacrifice contributions. Any imputation credits associated with that income can thus be used of offset this tax obligation and any unused credit is refunded.

        In pension phase, a super fund has to complete a tax return, but it pays no tax on its income or capital gains. This means that all the imputation credits are refunded as cash to the fund and this is extra cash that can be distributed to members as higher pensions.

        If you hold your shares outside super, the imputation credits will help to offset your tax payable on that income. In fact, you can earn $94,500 in dividend income and pay no additional tax (assuming 100% franking) as the associated $40,500 imputation credits cancel out the tax payable on the taxable income of $135,000. (Imputation credits are regarded as income even though you do not receive them)

        If you hold your retirement savings inside a SMSF paying a pension, the fund pays no tax on its earnings and the fund gets an additional tax refund for any imputation credits. Therefore, the same $94,500 in dividends would get an additional refund of $40,500, for a total income of $135,000.

        Moreover, if you draw a pension from a super pension fund, you also pay no personal tax on your pension income if you are over 60. As it is tax exempt income, it does not even appear on your tax return and that means that any non-super income such as interest, rent, or dividends can benefit from low marginal tax rates and/or tax offsets.

        Combining the tax advantages of imputation credits with the tax advantages of a super pension make this a powerful strategy.

  19. The main issue with these numbers is the assumed 7% return over the long term. A cursory look at inventments would show that something below 6% is probably closer the ‘norm’

    • Hi Glenn
      Thanks for your comments. The assumed return that someone chooses to use is clearly very important when planning for a retirement target. It’s ironic that during the boom times between 2003 and 2007 I was challenged that using 7% after fees and taxes was too low. While today, investing after the GFC and dealing with rocky international investment markets and a flat Australian sharemarket, the 7% could arguably be considered too high as an assumed return. Later this year, I will explore this issue in more detail, especially the move towards after-tax reporting by super funds, which should deliver investment approaches that are more mindful of the return after taxes, rather than gross returns.
      In Australia, for those who invest in Australian shares there is an additional tax benefit when receiving franked dividends which can also boost a super fund’s returns. Even so, the reason I disclose the assumptions that I use is to ensure that readers can make their own decisions about the investment returns they choose to aim for, and adjust the numbers accordingly.

  20. The one factor always left out of this superannuation equation by the experts is “How much, if any, do you want to leave to the kids when you die?”

    • Hi Tony
      Thanks for your comment. Most of the questions we receive about retirement planning are about how much is enough for a decent lifestyle. We also receive questions about estate planning, which is an extension of the question about ‘how much is enough’. Estate planning is a case-by-case scenario, and it is dependent on the retirement needs of the generous parent. We will however explore this issue in future articles.

      • Reg Wilkinson says:

        My wife and I have been retired now for 14 years. We have a trusted advisor, a SMSF and have the confidence of being with a large financial organisation who allow us to have a real input in choosing our investments.
        Without disclosing our exact financial status, I can say that for the whole time of our retirement, we have drawn a pension equivalent to more than 7% the whole time, and now have more in our fund than when we first started. We have paid just over 1% of the principle in fees each year, which to me is fair, considering the security that they have provided.
        We have 20% still in a retirement bank account to give us a little more comfort, but to me, as long as we stay careful and reasonably conservative, the stock market is the only way to maintain our capital.
        The scary part about retirement, is that idle time is spending time. Be very aware!

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