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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