Note: This article is a supporting article to the three-part series, ‘Crunching the numbers: a $1 million retirement (7% and 5% returns)’, ‘Low yields: A $1 million retirement on 3% or 2% returns, and ‘Crunching the numbers: a $1.6 million retirement’ (links for these articles are set out at the end of the article).
Before I receive dozens of emails stating that $1 million can indeed last forever, let me start with the following statement: If you live off only the earnings from your invested capital then your capital can indeed last ‘forever’. The dilemma facing all investors and retirees is balancing the desired lifestyle (and maintaining that lifestyle over 25 to 35 years) with protecting capital, and potentially leaving some wealth behind for your children or other dependants.
Important: Further, if you choose to use the superannuation system for your retirement plans, then you must withdraw a certain percentage of your pension account each year to receive concessional tax treatment (no tax) on your super pension account’s earnings.
This article explains the concept of ‘today’s dollars’, and also highlights why allowing for inflation when planning for retirement ensures that you protect your desired standard of living when you retire.
Note: Since 1 July 2017, you can transfer no more than $1.6 million into a superannuation pension account. For more information on this new rule, see SuperGuide article Retirement phase: A super guide to the $1.6 million transfer balance cap.