1. 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model requires you to have a detailed plan for your retirement, something that is both quite difficult and instantly out of date.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.


  2. 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.

  3. 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

  4. 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.

  5. Karin Wheeler says:

    I found this information very helpful, thank you.

  6. 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

  7. 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.

  8. 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.

  9. 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.

Leave a Comment