Setting a retirement target

The most popular question we get from those planning their retirement is ‘How much money is enough?’ From experience I know that when people ask this question what they really want to know is how much they will need to maintain their current lifestyle.

So how much is enough? For an average couple to live a comfortable life in retirement they will need income after tax of around $56,000 per annum. A single person will need $41,000 per annum after tax.

Determining how much capital you will need in retirement is not easy but can be done using the following factors as a guide:

1.     Income expectations – this is the level of income that you hope to receive each year once retired. There is no point guessing what this might be and sitting down to calculate an accurate budget is of paramount importance. 

2.     Life expectancy – how long you expect to live? Another difficult to answer question but start with statistics (for example a 65 year old male is expected to live for another 18.54 years) and also take into account factors such as your current health and family history. If your grandmother and mother both lived into their 90’s then there is a chance you will too.

3.     Investment returns – what can you expect to receive on your investments? This will be guided by the amount of risk you are willing to take. If you are a conservative investor who only wants to invest in cash and term deposits then you will require a larger lump sum than someone who is willing to invest in a diversified portfolio including shares as these tend to produce higher returns over longer periods.

4.     Work plans – are you able to or do you want to work part time in retirement? This will ease the burden on the need for your investments to produce your desired level of income and may prolong the need to draw down heavily on your investment capital in the early years of being retired. Even a small income form working can have a dramatic effect on how long your money will last.

Once the above have been considered and a budget prepared we will have a fair idea of how much will be required. I find that, once people know how much they need, they are relieved to know what they need to target.

As a general rule of thumb if you want a similar lifestyle in retirement to what you were enjoying whilst working you need a minimum of 60% – 65% of your pre-retirement income in retirement. For example if you live comfortably on $60K per annum a year and want a similar lifestyle in retirement you will need income of at least $36K per annum. If your pre retirement income is $120K per annum then you will need $72K per annum once retired.


Knight Financial Advisors Pty Ltd is a Corporate Authorised Representative of Sentry Wealth Management Pty Ltd (AFSL 227 748) ABN 77 103 642 888. The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

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