Contents

*Note:** The Coalition government has introduced a super pension transfer balance cap of $1.6 million, per individual, which took effect from 1 July 2017. As a couple, it is possible to have 2 separate pension accounts of up to $1.6 million each (a combined total of $3.2 million in super pension accounts). This article illustrates what a starting retirement sum of $1.6 million can deliver in retirement, in today’s dollars. In relation to couples, for this article, we assume a couple has $1.6 million in super, rather than $3.2 million in super. Latest article update is August 2017.*

*How the tables work:** The figures in this article already take into account the harsher Age Pension assets test, which took effect from 1 January 2017. This article is periodically updated with new figures to allow readers to compare what a $1.6 million retirement can deliver if retirement savings are invested with returns of 7% a year, or if invested on retirement with returns of 5% each year. If you opt for a 5% investment return, rather than, say, 7% return, during retirement, then you will need to accept a lower annual income for the same lump sum on retirement.*

We are often asked the question ‘how much super is enough for a worry-free retirement?’, and we regularly update our special *SuperGuide *articles on this topic for our readers. In this article however, we are tackling the issue from a very different perspective. We’re answering the following question: what does a $1.6 million retirement look like?

The majority of Australians won’t need $1.6 million in today’s dollars to have a comfortable retirement, but a significant minority of Australians have planned for, or are planning for (or at least hoping for) such a retirement lifestyle. For those who have more than $1.6 million in super, and what the government wants you to do with your super savings above $1.6 million, see *SuperGuide* article Retirement phase: A super guide to the $1.6 million transfer balance cap.

**Note:** In related *SuperGuide* articles, I also do the numbers for those readers who aspire to a $1 million retirement in Crunching the numbers: $1 million retirement and in Low yields: A $1 million retirement on 3% or 2% returns.

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

## …but you don’t need $1.6 million for a ‘comfortable’ retirement

If $1 million or $1.6 million in retirement is beyond your wildest dreams then check out our other *SuperGuide* articles dealing with the topic of how much super do I need?

Even when you have a small amount of super savings, you may be pleasantly surprised by what your retirement savings can deliver, especially if you’re entitled to a FULL or PART Age Pension.

According to ASFA, you can live a modest life in retirement on around **$34,855** a year as a couple, and a comfortable life on nearly **$60,000** a year, and the lump sums you need for $60,000 a year (indexed) is nowhere near $1 million, when you take into account the Age Pension.

For example, assuming Age Pension age is 65 years (currently applicable for many Australians), a couple can secure a modest lifestyle with hardly any private savings, because the FULL Age Pension for a couple is now **$34,268** (applicable from 20 March 2017, and excluding Energy Supplement). Without the Age Pension, a couple would need a lump sum of **$570,000** to deliver the equivalent annual retirement income of $34,855 (assuming retirement assets are generating a 7% return), or **$895,000** (if retirement assets are generating a 3% return) until at least the age of 90.

**In comparison:** With a healthy PART Age Pension, a lump sum of around **$445,000** can deliver a couple **$60,000** (indexed) a year in retirement until at least the age of 90, and roughly **$55,600** (indexed) a year until at least the age of 100, according to the ASIC MoneySmart Retirement Planner, and assuming the money is invested in assets that return 7% a year.

*Note:** If your money is returning only 5% a year (rather than 7%), then you will need at least an extra $170,000 as a couple to finance $60,000 a year (indexed) for 25 years, that is, until at least the age of 90 (including Age Pension entitlements). If your money is returning only 3% a year (rather than 7%), then you will need virtually double the amount of savings – at least an extra $440,000 as a couple to finance $60,000 a year (indexed) for 25 years, that is, until at least the age of 90 (including Age Pension entitlements).*

For more information on how to achieve a comfortable retirement without $1.6 million, or even without $1 million, read the *SuperGuide* article How much super do you need to retire comfortably?

**Tip:** If you’re aspiring to a $1.6 million retirement, or a $1 million retirement, then it may be worthwhile having a chat with a financial adviser or an accountant about the most tax-effective, and ‘risk appropriate’ way to get there.

## What can $1.6 million generate in terms of an annual tax-free income in retirement?

Continue reading to find out what $1.6 million in today’s dollars can deliver you if you want your lifestyle to last until at least the age of 90, or if you want your lifestyle to last until the age of 100, or somewhere in between. The average life expectancy for a 65-year-old woman is 87 years, while average life expectancy for a 65-year-old man is 84.22 years. We provide figures for a couple, or a single person, and where relevant, we include any Age Pension entitlements.

Even so, not everyone plans, or is able, to retire at age 65 (or whatever your Age Pension age is: to find out your Age Pension age see *SuperGuide* article Age Pension age increasing to 67 years).

Everyone has different retirement plans, and if you are intending to accumulate $1.6 million in assets for your retirement, then there is a much higher likelihood that you will retire earlier than someone without that type of cash – because you can afford to!

The tables and text below outline the annual incomes you can expect if you retire with $1.6 million, and you retire at age 57, 61, 65, 67 or age 70. You can also see the different incomes you can expect depending on whether you invest your retirement money generating a return of 7% or 5%, and whether you want your money to last until you are at least age 90, or until at least age 100.

**Summary point, for a COUPLE:** A couple retiring today with **$1.6 million** can expect an indexed annual retirement income of between **$73,294** (from age 65 until at least age 100, and 5% return) and **$104,711** (from aged 65 until at least age 90, and 7% return). See following text and Table 1 (later in the article) for further explanation. We assume Age Pension age is 65 when retiring at age 65, and preservation age is at least age 57, when retiring at age 57.

**Summary point, for SINGLE PERSON:** A single person retiring today with **$1.6 million** can expect an indexed annual retirement income of between **$64,205** (from age 65 until age 100, and based on 5% return) and **$105,488** (from aged 65 until age 87, and based on 7% return). See text later in the article and Table 2 for further explanation. We assume Age Pension age is 65 when retiring at age 65, and preservation age is at least age 57, when retiring at age 57.

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

We have created a table for couples (Table 1) and a table for singles (Table 2) due to the different Age Pension treatment for singles and couples. If you have $1.6 million when you retire, you will not receive any Age Pension entitlements but couples may be entitled to a small PART Age Pension in the later years of retirement. Although a couple can potentially have $3.2 million in super pension accounts under the $1.6 million transfer balance cap rules, Table 1 only deals with a $1.6 million retirement balance for a couple.

- Table 1: If you’re part of a COUPLE and retire with $1.6 million
- Table 2: If you’re SINGLE and retire with $1.6 million

**Note:** The $1.6 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see *SuperGuide* article Retirement: Today’s dollars, and why $1 million can’t last forever.

## If you’re part of a COUPLE, and retire with $1.6 million

Due to the Age Pension assets test and Age Pension income test, a couple with $1.6 million in super on retirement will not be eligible for a PART Age Pension, although retirees may receive a PART Age Pension in the later years of retirement.

**Note: **Also, due to the more generous treatment of assets for a couple when determining eligibility for the Age Pension (compared with a single person), a couple who retire with **$1.6 million** in super on retirement, are more likely to receive a PART Age Pension, when eventually they become eligible for a PART Age Pension in the later years of retirement. Within Table 1, we indicate when a PART Age Pension starts, using ‘part AP’.

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

- Couple – retiring at age 57 (current minimum age for accessing super)
- Couple – retiring at age 61
- Couple – retiring at age 65
- Couple – retiring at age 67
- Couple – retiring at age 70

#### Table 1: A $1.6 MILLION retirement (in today’s dollars) for a COUPLE

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

Money lasts until at least: | Age 90 | Age 100 | Age 90 | Age 100 |

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

Age 57* | $90,821 | $80,723 | $75,752 | $65,604 |

Part AP | from age 76 | from age 82 | from age 73 | from age 76 |

Age 61 | $96,870 | $84,166 | $81,779 | $69,049 |

Part AP | from age 77 | from age 83 | from age 75 | from age 79 |

Age 65 | $104,711 | $88,337 | $89,708 | $73,294 |

Part AP | from age 79 | from age 85 | from age 77 | from age 81 |

Age 67 | $109,700 | $90,821 | $94,675 | $75,758 |

Part AP | from age 80 | from age 86 | from age 79 | from age 83 |

Age 70 | $118,986 | $95,165 | $103,971 | $80,117 |

Part AP | from age 81 | from age 87 | from age 80 | from age 85 |

**Tax may be payable on income when retiring before the age of 60, and the figures for age 57, assume your preservation age for accessing super is 57 years or younger. *

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

### Couple – retiring at age 57

If you want to retire before the age of 60, for example age 57, then your super savings will have to finance a longer life in retirement, and you can expect to pay some tax on your pension income.

You must have reached your preservation age to access your super benefits. The minimum preservation age increased to 57 years, and anyone born on or after 1 July 1961 has a preservation age of at least 57 years, and preservation age increases to age 60 for those born on or after 1 July 1964 (for more information about your preservation age, see *SuperGuide* article Accessing super: What is my preservation age?)

*Ignoring tax and assuming your retirement savings are invested at 7%,* if you retire today at age 57 with **$1.6 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$90,821**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from age 76), and potentially this income could be taxed until you reach the age of 60. **$80,723**(indexed) a year until at least the age of 100 (with a PART Age Pension from age 82), and income potentially taxed until the age of 60.

*Ignoring tax and assuming your retirement savings are invested at 5%,* if you retire today at age 56 with **$1.6 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$75,752**(indexed) a year until at least the age of 90 (including a PART Age Pension from the age of 73) and potentially this income could be taxed until you reach the age of 60. **$65,604**(indexed) a year until at least the age of 100 (including a PART Age Pension from the age of 76) and income potentially taxed until the age of 60.

### Couple – retiring at age 61

If you retire before reaching Age Pension age but after the age of 60, for example age 61, you can still expect tax-free pension income, and the issue of retiring before Age Pension age is irrelevant in the early years of your retirement, as a couple, because your assets and income preclude you from claiming the Age Pension.

*Assuming your retirement savings are invested at 7%,* if you retire today at age 61 with **$1.6 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$96,870**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from the age of 77). **$84,166**(indexed) a year until at least the age of 100 (with a PART Age Pension from the age of 83).

*Assuming your retirement savings are invested at 5%,* if you retire today at age 61 with **$1.6 million** in super, as a couple, your savings can deliver you:

- A retirement income of
**$81,779**(indexed) a year until at least the age of 90 (including a PART Age Pension from the age of 75). **$69,049**(indexed) a year until at least the age of 100 (including a PART Age Pension entitlement from the age of 79).

### Couple – retiring at age 65

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 65 (assuming this is your Age Pension age) with **$1.6 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$104,711**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from the age 79). **$88,337**(indexed) a year until at least the age of 100 (which includes a PART Age Pension from the age of 85).

*Assuming your retirement savings are invested at 5%,* if you retire today, at the age of 65 (assuming this is your Age Pension age) with **$1.6 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$89,708**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from the age of 77). **$73,294**(indexed) a year until at least the age of 100 (which includes a PART Age Pension from age 81).

### Couple – retiring at age 67

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 67 with **$1.6 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$109,700**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from the age 80). **$90,821**(indexed) a year until at least the age of 100 (which includes a PART Age Pension from the age of 86).

*Assuming your retirement savings are invested at 5%,* if you retire today, at the age of 67 with **$1.6 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$94,675**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from the age of 79). **$75,758**(indexed) a year until at least the age of 100 (which includes a PART Age Pension from age 83).

### Couple – retiring at age 70

*Assuming your retirement savings are invested at 7%,* if you retire today, at the age of 70 with **$1.6 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$118,986**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from age 81). - around
**$95,165**(indexed) a year until at least the age of 100 (which includes a PART Age Pension from the age of 87).

*Assuming your retirement savings are invested at 5%,* if you retire today, at the age of 70 with **$1.6 million** in super, as a couple, your savings can deliver you:

- a retirement income of
**$103,971**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from the age of 80). - around
**$80,117**(indexed) a year until at least the age of 100 (which includes a PART Age Pension from age 85).

**Important:**The $1.6 million scenarios referred to in this article allow for 3% inflation when working out annual incomes, so the figures in these features automatically allow for the annual adjustment in retirement incomes. For further explanation of why planning for retirement using today’s dollars is more helpful than retirement planning using tomorrow’s dollars, see

*SuperGuide*article Retirement: Today’s dollars, and why $1 million can’t last forever.

**Note:** In related articles, I also crunch the numbers for those readers who are working towards, or dreaming of, a $1 million retirement (see *SuperGuide* articles Crunching the numbers: a $1 million retirement (7% and 5% returns) and Low yields: A $1 million retirement on 3% or 2% returns.

## If you’re SINGLE and retire with $1.6 million

If you’re a single person retiring with $1.6 million you will not be eligible for a PART Age Pension on retirement. If you do become eligible for a PART Age Pension it will be a small amount in the later stage of your retirement.

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

- Single person – retiring at age 57 (current minimum age for accessing super)
- Single person – retiring at age 61
- Single person – retiring at age 65
- Single person – retiring at age 67
- Single person – retiring at age 70

#### Table 2: A $1.6 MILLION retirement (in today’s dollars) for a SINGLE PERSON

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

Money lasts until at least: | Age 90 | Age 100 | Age 90 | Age 100 |

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

Age 57* | $90,813 | $80,718 | $75,761 | $65,614 |

Part AP | from age 76 | from age 82 | from age 73 | from age 76 |

Age 61 | $96,867 | $84,161 | $81,772 | $69,047 |

Part AP | from age 77 | from age 83 | from age 75 | from age 79 |

Age 65 | $104,700 | $88,330 | $89,698 | $73,292 |

Part AP | from age 79 | from age 85 | from age 77 | from age 81 |

Age 67 | $109,697 | $90,813 | $94,6720 | $75,752 |

Part AP | from age 80 | from age 86 | from age 79 | from age 83 |

Age 70 | $118,982 | $95,157 | $103,957 | $80,110 |

Part AP | from age 81 | from age 87 | from age 80 | from age 85 |

**Tax may be payable on income when retiring before the age of 60, and the figures for age 57, assume your preservation age for accessing super is 57 years or younger.*

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

### Single person – retiring at age 57

If you want to retire before the age of 60, for example age 57, then you can expect to pay some tax on your pension income.

*Assuming your retirement savings are invested at 7%,* if you retire today at age 57 with **$1.6 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$90,813**(indexed) a year until at least the age of 90 (which includes a PART Age Pension from age 76). Potentially this income could be taxed until you reach the age of 60. **$80,718**(indexed) a year until at least the age of 100, with a PART Age Pension from age 82. Potentially, this income could be taxed until you reach the age of 60.

*Assuming your retirement savings are invested at 5%,* if you retire today at age 57 with **$1.6 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$75,761**(indexed) a year until at least the age of 90 (with a PART Age Pension from age 73). Potentially, this income could be taxed until you reach the age of 60. **$65,614**(indexed) a year until at least the age of 100 (including a PART Age Pension from the age of 76). Potentially, income taxed until the age of 60.

### Single person – retiring at age 61

If you retire before your Age Pension age but after the age of 60, for example age 61, you can still expect tax-free pension income, and the issue of retiring before **Age Pension age** is irrelevant because your assets preclude you from claiming the Age Pension (in most cases, and if eligible, only in the later years of retirement).

*Assuming your retirement savings are invested at 7%,* if you retire today at age 61 with **$1.6 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$96,867**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 77). **$84,161**(indexed) a year until at least the age of 100 (including a PART Age Pension from age 83).

*Assuming your retirement savings are invested at 5%,* if you retire today at age 61 with **$1.6 million** in super, as a single person, your savings can deliver you:

- A retirement income of
**$81,772**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 75 **$69,047**(indexed) a year until at least the age of 100 (including a PART Age Pension from the age of 79).

### Single person – retiring at age 65

*Assuming your retirement savings are invested at 7%,* if you retire today at the age of 65 (assuming 65 is your Age Pension age) with **$1.6 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$104,700**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 79). **$88,330**(indexed) a year until at least the age of 100 (including a PART Age Pension from age 85).

*Assuming your retirement savings are invested at 5%,* if you retire today at the age of 65 (assuming 65 is your Age Pension age) with **$1.6 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$89,698**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 77). **$73,292**(indexed) a year until at least the age of 100 (including a PART Age Pension from the age of 81).

### Single person – retiring at age 67

*Assuming your retirement savings are invested at 7%,* if you retire today at the age of 67 with **$1.6 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$109,697**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 80). **$90,813**(indexed) a year until at least the age of 100 (including a PART Age Pension from age 86).

*Assuming your retirement savings are invested at 5%,* if you retire today at the age of 67 with **$1.6 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$94,672**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 79). **$75,752**(indexed) a year until at least the age of 100 (with a PART Age Pension from the age of 83).

### Single person – retiring at age 70

*Assuming your retirement savings are invested at 7%,* if you retire today at the age of 70 with **$1.6 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$118,982**(indexed) a year until at least the age of 87 (including a PART Age Pension from age 81). **$95,157**(indexed) a year until at least the age of 100 (including a PART Age Pension from age 87).

*Assuming your retirement savings are invested at 5%,* if you retire today at the age of 70 with **$1.6 million** in super, as a single person, your savings can deliver you:

- a retirement income of
**$103,957**(indexed) a year until at least the age of 90 (including a PART Age Pension from age 80). **$80,110**(indexed) a year until at least the age of 100 (with a small PART Age Pension from the age of 85).

#### $1.6 million retirement: Assumptions for text and Tables 1 and 2 (click to open and close)

## For more articles on how much super is enough…

If you are seeking more information about how much super is enough to live comfortably, then check out the following *SuperGuide* articles:

- How much super do you need to retire comfortably?
- Setting a retirement target: Living on more than $60,000 a year
- Retirement: Want to live on $100,000 a year?
- The super challenge: At what age should I retire?
- Retirement: Today’s dollars, and why $1 million can’t last forever
- Crunching the numbers: a $1 million retirement (7% and 5% returns)
- Low yields: A $1 million retirement on 3% or 2% returns
*SuperGuide*$1 million Retirement Reckoner: How does it work?- Life expectancy: Will you outlive your retirement savings?
- Moving targets: Come on, how much super do I really need?

Interesting to note the trinity study research explains at a roughly 4% (or 3% for certain) withdrawal rate ie 80k on 2mm, your money will never run out based on all retirement starting points in the last 100years of returns. Hence can retire much earlier if keep to this spending level. Why not run scenarios at 40yrs age etc.

I just don’t get it. If I have $2mil @ 7% I generate $140,000 pa so how can my super run out at 87 or 100 if I only withdraw $100,000 pa?

Will my super not keep growing ? or is it to do with the minimum WDL increases?

Bill the reason is the author makes the assumption that you can only make either 4% o 2% real return (7% return minus 3% inflation). Frankly this is misleading and defies history. The average real return on the Australian stock market over the last 80 years is 8.2% and then add franking credits of 1.3% (30% of 4.2% dividend payout) giving a real return of 9.5%. To be conservative 7.5% should be used and with $2m the annual payout on average will be $150K and it will never run out. The issue is this is the reality long term but over shorter periods ie the late 70s to 80’s a period of 13 years showed high inflation and stagnant share prices your investments can go down but eevn during this period the decline was about 1.5% pa with franking credits it was basically zero return.

So if you have a horizon of 20 years or more equities are your best bet and wil return 7.5 to 9% real return, so you have to hope that when you start isn’t the beginning of an unusual period.

trueblue this is not correct, the real reason is because it is indexed so the amount withdrawn every year increases in line with inflation so that income is constant in real terms. if you invest $2 million at 7% and withdraw an income of $140,000 in the first year then assuming CPI is 2.5% then the following year you need an income of $143,500 for the same income in real terms, so now your capital has reduced by $3,500 and the following year not only do you need another increase in income but you have less capital to generate it. As this process continues you can see why the money runs out. the time it takes to run out depends on the starting income you choose, hence in the examples used if you choose a smaller income it will last to age 100 instead of 87.

Yes the way it has been calculated (money runs out, indexed) is very mathematical, and correct, however I suspect most people would try to preserve the starting capital, and restrict income to that end, even add to the capital to try to offset the ‘time devaluation’ of money in later years. Health problems later in life are obvious unknowns, but would I be right in saying that you need less money generally as you get on in years and you slow down? again helping preserve that hard earned starting capital. I’m not much of a risk taker (unfortunately I think) and I see real property as a safe vehicle for super investment/income stream. 5% is achievable (costs bite into this obviously, but I’m getting up to 8%, they are out there if you look), and you get some benefit from rent increases with CPI, and obviously longer term capital gains. For those who want to ‘spend the kids’ inheritance’, the presented calculations are for you!….I’m still on the fence on this one…