Retirement Funding - How much $ is enough?

[87County]

There is a nearby thread on incomes that has prompted me to throw this in...

We have our own super fund and have retired (because we needed to healthwise) on its proceeds and I could never get, and I still havn't got, a useful answer to this question

"how much do we need to retire?"

The answer from "advisers" seems predicated on handing the funds over to them and then they will pay us about 7% (bank interest) and keep the rest :mad:

The accountant's smarta#se answer was always "if you have to ask you havn't got enough" :mad: - an answer common to the finance industry I gather and in fact the most annoying, frustrating and useless answer I can think of.

The accountant said we should keep working (I wonder if that was as much to his benefit as ours)

The tax treatment since 1 July means that the income from the fund is tax free (for over 60s) and the income from the fund's investments is also tax free and imputed tax on investments is repaid to the fund by the tax office

Given that the stockmarket is growing at at least 20%pa (yes I know we can't count on to always do that but it has done for quite a few years now), it is possible to do projections of fund growth less pension pays so it shouldn't be too hard to give e$timates I would have thought.

I didn't want to divert that other income thread. I noticed quite a few sensible posts on it so I would appreciate any opinions on this matter

If the consensus is a lot higher than we have then we'll have to learn to survive on the govt pensions with part-time work I guess

thanks

[EchiDna]

my parents still work for wages about 10 weeks a year - it puts em right up to the tax free threshold and doesn't impact all the tax free perks pensioners get... they intend to do this as long as they can physically manage it - no retirement age for university examination invigilators :)

that said, how long is a piece of string? - if you are debt free (and you should be if you are retired!) then your costs should be relatively low, if you have alternate sources of income (eg rent out the spare room, mow lawns for cash, make something to sell at markets) then you should be fine and not need to worry too much - relying on the proceeds of managed funds to pay the bills would have me worried though! what happens when they go backwards? (they will someday soon!) you can't eat nothing can ya?

[87County]

yes, EchiDna, you're quite right in saying its like asking how long is a piece of string

I should have written too that I was assuming the no debts bit...

but I guess I'm loooking for general opinion/views like $150k may well not be enough but maybe $250k could be, or $350k, or $450k or whatever...

what prompted me to write was it is that no-one who should know seems to want give a straight answer - even in ballpark amounts

[EchiDna]

thats coz we all live to a different age and die spending a wide range of $$$ on medical bills in the process!

ideally we would all die with $0.25 in the bank and have retained all our assets so that we can hand something on to the next generation... but that is rarely the case :)

I'm budgeting on dying at the average age of about 85 quitely in the night while never having had a thing go wrong in my life medically (by the time I get there it might be 100 - who knows)...

impossible to be accurate as we are all different, but chances are your accountant is right and there is no such thing as enough to be certain it's enough!

[JDNSW]

Unfortunately it does vary dramatically between individual circumstances, including how you want to live.

The biggest uncertainty is how long you are going to live. The thing we would all like to do is to keep the capital and just live on the interest/growth. But this, for any realistic life expectancy, means a lot bigger sum of money than would otherwise be needed, and leaves your heirs with a big windfall.

Then there are unexpected expenses - for example, in my case we had to pay for oxygen for nearly two years for my wife (no subsidy if you don't have a pension), and a lot of travel for medical treatment. The treatment for her itself did not cost much - most was bulk billed or charged at the scheduled fee. But a recent cancer operation I had, and an earlier foot operation had staggering "gap" charges, despite private health insurance (main advantage of this was no waiting list).

Other expenses include having to help adult children financially or in ways that involve costing you money even if not actually paying it out directly to or for them. (Weddings, home purchase, emergency bailouts etc.)

But remembering all these variables, my view, after 13 years as a self funded retiree is that a minimum is probably round $500,000, but again I have to emphasis that it all depends on circumstances.

John

[hiline]

Unfortunately it does vary dramatically between individual circumstances, including how you want to live.

The biggest uncertainty is how long you are going to live. The thing we would all like to do is to keep the capital and just live on the interest/growth. But this, for any realistic life expectancy, means a lot bigger sum of money than would otherwise be needed, and leaves your heirs with a big windfall.

Then there are unexpected expenses - for example, in my case we had to pay for oxygen for nearly two years for my wife (no subsidy if you don't have a pension), and a lot of travel for medical treatment. The treatment for her itself did not cost much - most was bulk billed or charged at the scheduled fee. But a recent cancer operation I had, and an earlier foot operation had staggering "gap" charges, despite private health insurance (main advantage of this was no waiting list).

Other expenses include having to help adult children financially or in ways that involve costing you money even if not actually paying it out directly to or for them. (Weddings, home purchase, emergency bailouts etc.)

But remembering all these variables, my view, after 13 years as a self funded retiree is that a minimum is probably round $500,000, but again I have to emphasis that it all depends on circumstances.

John

thanks John i'm really looking forward to retirement now :eek:
4 kids and all them added pressures;)

i think i might need a couple of mill to retire on:D

[Bigbjorn]

As another self-funded retiree, my principal income is from two allocated pensions. These are balanced funds that have earned around 14% last last 3 years. I am drawing the minimum permitted from these and the balance is going up in spite of drawing an income. I also receive a Superannuation Fund pension which is indexed at CPI six monthly. This fund did not give a pension increase last June as they say there was no CPI rise, "no inflation", in spite of the Reserve Bank saying there is 6% inflation. This fund also earned at 14% but does not pass the earnings on to the members saying the returns are to build up the fund for the bad years. If you do not wish to claim an Age Pension from Centrelink then I would say you need around $500,000 in allocated pensions to produce an income of $40,000 pa based on retiring at 55 and a life expectancy of late eighties. As the asset value of the allocated pensions declines with withdrawals then you would become eleigible for an Age Pension.

[barryj]

After me having to give up working at 48 due to illness we have been looking at this issue very intensely.

It's not until you get $0 from anywhere and the bills keep arriving that many people realise how income dependent we are driven as a society.

Our solution, stop looking at advertising that only wants our money and give us goodies we don't need.

Look at the reoccurring expenses like electricity, phone, Internet, rego, etc. For an example we saved $20 per month just by changing Internet providers and now have double the speed that we used to.

Limit take away meals as these can add up to over $100 per week easily just for the convenience of a quick feed.

As well as the above do a detailed budget to see exactly where money is going. Make sure to include holidays as these are needed.

Another idea is to either reduce liquid assets enough to get pension benefits or have enough not to need a pension. e.g. some people buy an expensive house as their place of residence so not to have cash assets for CentreLink purposes.

Certainly not an easy exercise and be careful of financial 'experts' as they get thousands for signing you up to a investment plan. Our financial adviser lives very well on 3 days per week work and he is under 40 years of age. Lucky for us that he is a family friend and takes minimal commission from us.

[barryj]

As another self-funded retiree, my principal income is from two allocated pensions. These are balanced funds that have earned around 14% last last 3 years. I am drawing the minimum permitted from these and the balance is going up in spite of drawing an income. I also receive a Superannuation Fund pension which is indexed at CPI six monthly. This fund did not give a pension increase last June as they say there was no CPI rise, "no inflation", in spite of the Reserve Bank saying there is 6% inflation. This fund also earned at 14% but does not pass the earnings on to the members saying the returns are to build up the fund for the bad years. If you do not wish to claim an Age Pension from Centrelink then I would say you need around $500,000 in allocated pensions to produce an income of $40,000 pa based on retiring at 55 and a life expectancy of late eighties. As the asset value of the allocated pensions declines with withdrawals then you would become eleigible for an Age Pension.


Wise words Brian.

[Graz]

There is a nearby thread on incomes that has prompted me to throw this in...

We have our own super fund and have retired (because we needed to healthwise) on its proceeds and I could never get, and I still havn't got, a useful answer to this question

"how much do we need to retire?"

The answer from "advisers" seems predicated on handing the funds over to them and then they will pay us about 7% (bank interest) and keep the rest :mad:

The accountant's smarta#se answer was always "if you have to ask you havn't got enough" :mad: - an answer common to the finance industry I gather and in fact the most annoying, frustrating and useless answer I can think of.

The accountant said we should keep working (I wonder if that was as much to his benefit as ours)

The tax treatment since 1 July means that the income from the fund is tax free (for over 60s) and the income from the fund's investments is also tax free and imputed tax on investments is repaid to the fund by the tax office

Given that the stockmarket is growing at at least 20%pa (yes I know we can't count on to always do that but it has done for quite a few years now), it is possible to do projections of fund growth less pension pays so it shouldn't be too hard to give e$timates I would have thought.

I didn't want to divert that other income thread. I noticed quite a few sensible posts on it so I would appreciate any opinions on this matter

If the consensus is a lot higher than we have then we'll have to learn to survive on the govt pensions with part-time work I guess

thanks

Someone might think that these figures were plucked from somewhere dark. I have just been to a super retirement planning seminar and noted the following: If your annual income requirement is $30,000 then your super payout should be $492,914, or $40,000 super payout $657,219, or $50,000 super payout $821,523.
I'll need to work for the next 15 years:(:(:(:(

[weeds]

age pension....my financial planner/advisor has indicated i will never see it:mad:

start planning early, well thats what i have reliased.....i never thought much about it till i have notice some guys at work retiring or about to retire in the next couple of years along with relatives have relised all to late that they may not have the $$$ they were hoping to have and have been saying they wished they had looked at things years ago

my instrustions to our advisor was that we want to be in position to retire at 55 (i want to retire now but 36 is a little young plus i cannot afford it) with $X per week for thirty years (i think thats what they work on) living in a house worth $X in today market and off course being debt free. he has indicated that we should reach our goal + more and was impressed that we have looked to retirement 20yrs out.

i think we were sensible with requirements for retirment without going over the top and kept in mind that we didn't want to change our existing lifestyle and i f can end up with more on my current lifestyle i will be even more happier

we have only just started out with the plan and will review how it is going after 12 months to make sure it suits our needs

how much is enough....well thats differant for everybody, what we did was workout in todays $$$ what we think we will need at retirement and have something inplace to hopefully achieve our goal

[Lotz-A-Landies]

At 40 I realised there would be no aged pension and my other super funds were only in the 10's of thousands. I started sacrificing $100 per fortnight on top of the mandated Super Guarantee my employer pays and still found it too paltry a sum to get anywhere near a decent balance.

Now 10 years later I sacrifice 14% of my pre-tax salary (and have done for some years) and now have 100s of thousands in the account but will still need to work till 60 to have a decent retirement income.

The good thing is that the interest now adds as much or more than I do myself.

The better thing would have been to sacrifice at least 10% pre-tax while I was still in my 20s.

When working with junior staff and new graduates it is something I always stress to them. Plan for your retirement now you won't miss the deductions when young but will be glad when planning to retire. Unfortunately it often falls on deaf ears. :(

Diana

[numpty]

How much do I need to retire? This is the question all Advisors get asked and the answer they should give you is "how much do you need to retire"

Bit obvious I know but everyones wants and needs are different. We intend to retire in 3 years at my age 57, although our advisor would like us to go to 60 (of course he would), and have been working towards this for 10 years. I know of people who live on $25000 a year and are very happy and comfortable, but many people never have a large income when they are working, so a small retirement income is not a worry.

BTW according to our advisor the ratio of lump sum to pension that is most commonly used is the rule of 15. That is whatever you deem to be your retirement income, multiply that by 15 and that is the lump sum required. eg if you want $40000 then you will need a lump sum of $600000.

My advice to anyone considering retirement in 10 to 20 years.....start planning.

[87County]

thank you all for your input - it's really good to have a range of honest viewpoints and particularly I would like to thank those who offered thoughts on actual amounts and ratios of fund balance to pension

also valuable comments from barryj and John about managing expenditure and unplanned/unexpected major costs

One important point coming thru is that it truly is so hard to define for a particular individual. Speaking to others who were formerly self-employed but now retirees, I find this common thread (how much $ is needed?), and then when they look into their details - mostly they fortunately find that they are better off than they thought.

I guess that we very fortunate too, to live in such a wealthy country that, if all else fails, pays all of part of an age pension if we really need it (age pension now available at least in part for those retirees with notional incomes less than $80k I think)

I also think that we are fortunate having such choice for self funded retirees from self managed funds where we decide our own pension pays to being able to hand it on to a fund manager if self-managing is not our thing.

I know the generosity of sfund conditions has been a govt strategy to encourage people to make provision for their retirement and I see that it is paying off.

I guess we'll all have our own views about funds and their managers and I suppose the main reason that my partner and I manage our own is the same one that makes me do my own oil changes - I then KNOW that its done (independent streak? :))

Thanks again to all respondents

[barryj]

age pension....my financial planner/advisor has indicated i will never see it:mad:



I think this is a bit of a financial planner furphy. I was told this at age 21 which was a fair while ago. Aged people will have a majority vote in a few years time, if not now, so the Government will have to look after them.

It really depends what you want to do in retirement.

My Father-In-law retired from the Railways about 20 odd years ago with very little super and owning one house. He has six grown up children and a few Grand kids. He has never wanted for anything and holidays a few times a year with his free rail travel.

His wife died a couple of years ago and since then has sold the house and is living very happily in a retirement village with a couple hundred thousand invested and he still gets the pension.

My Dad is the other way. He retired 20 years ago and had little assets apart from his house. Since then his Mother died and left him a house and 60% of assets which including about $600,000 cash and the family farm.

Now he does not get the pension owing to too much in assets but he has invested the cash and gets enough to live off from that and a very small rent on the second house.

[LSBob]

If you are over 60 and have all debts paid off (including kids now at work) then you can survive on a lot less but it depends what lifestyle you want to lead. For a few years before retiring I prepared a spreadsheet of all my income and expenditure and from that I know, subject to changes in life style, what I needed to live comfortably. There are various sites which offer planning tools such as http://www.fido.asic.gov.au/fido/fido.nsf
http://www.aboutseniors.com.au/index.php
http://www.ato.gov.au/default.asp'menu=63
http://www.nationalseniors.com.au/
which will help you to plan and the difference between the different types of pensions. If you are only getting a return of 7% that is low, most companies work on 8% over many years to allow for the rises and falls that occur and at the moment reliable investment companies are returning 14% and higher in dividends,
Use some of the spreadsheets and their returns then play around with them allowing for large one off expenses for say a long holiday, operation and also add in what you could get in a government pension as while the money may not be much after allowing for your allocated pension, the Pension Card (or even Seniors Card if you are not yet 65) saves you money on many govenment items eg car rego,

It sounds that you might need to change your financial advisor and get one who specialises in retirement.

[scrambler]

The advice I had when starting planning (in my 20's - self-employed at the time) was that I should plan to have $1 Million+ at retirement. I'd think that Brian's suggestion of $500,000 currently wouldn't be too far out. You need to factor in that using all your capital to live on is a bad idea, and a worse idea the longer you live. I have plenty of patients in their 90's. If you retire at 50, you might well spend 1/2 your life retired. That takes a lot of capital!

My advice to people is to instill a sense of gratitude in their children - I figure there'll be precious little money in the Government coffers by the time I retire. You want someone to look after you.

[austastar]

Hi,
gee this thread may be two years old, but I'm glad I found it.
It is reassuring have the words of others echoing you own thoughts and estimates.
thanks guys.
cheers