How much cash.

[Tandum]

What sort of funds does one need to retire?

I've been told that $800K is plenty for retirement at 55.

Using my simple maths, That much cash would only last about 15 years at 50K/year. Am I missing something?

[AstroFlyer]

It really depend on your needs/wants/savings/etc.
That should get you started.

http://www.superguide.com.au/how-super-works/a-comfortable-retirement-how-much-super-is-enough

Arek

[AndrewJ]

Gday Robin

You are assuming the 800K isn't earning income.
Invested at even 3.5% in a bank,
you would get 28K a year interest, ( with little tax )
so only need to draw down 22K on capital, not 50.
With part of it invested in shares that have capital growth
and moderate dividends, you will also get a much longer timespan
before its gone.
Inflation is the unknown here.

Andrew

[multiweb]

$800k is a good ball park for $45k a year. As Andrew said if you have the capital invested you can make it last a little longer. The problem is that self funded or not you'll probably will have to wait until you're 67 or older before you can access that money. Back home they pushed it to 72 which is a freakin' joke. If you retire at 55 I'm not sure how it works but I'd say you'd be slashed by taxes assuming you work out how to get the money. There are some exceptions to cash in earlier some as extreme hardship or terminal disease, etc... But $800k sounds confy. For now... by then who knows.

[Danack]

You missed that the savings also earn money.

Just sticking the money in a boring long term deposit account, you can get 5% and then your savings are earning $40k a year.




Depends if you just want to sit at home watching TV eating baked beans or do something with your retirement.

[Kunama]

It really depends on your spending habits and other assets, do you own your house, cars etc outright? Have you done all the overseas travel you ever wanted to do?
Your lifestyle ......... restaurants, raging all night, smoker/drinker?? Are you prepared to downsize that big mansion or move to a cheaper area (cheaper areas are usually also the ones that have dark skies !!!)

I think the amount needed is over estimated because the superfunds and government don't want you to retire!!!

It is a widely accepted fact that astrophotographers need to work 5 years longer than visual astronomers to maintain their living standard!

[Barrykgerdes]

I have examined this problem in relation to my own superanuation problem to return an inflation proofed (indexed) pension in perpetuity.

This also depends on owning your own home. The current valuation I give my "pension" ie the amount I would need to have with investments and property as $1.35m dollars to maintain my life style.

Barry

[Kunama]

Are you including your residence in the 1.35 M calc?

[multiweb]

@Matt: How do you retire at 55? Can you cash in any kind of pension money. I always assumed early retirment would mean personal asset to bridge the gap before you are entitled to withdrawal. Interested to hear. :)

[casstony]

The amount needed for retirement is probably larger than many would guess due to lower investment returns for the coming decade or more.

[Kunama]

In my case I had several super accts running for up to 30yrs, I cashed a couple in for play money and converted the rest into an indexed pension. Besides I like baked beans !

The only stipulation is that I can now only be gainfully employed for 10hrs a week, but I have found that working is actually over rated, so I have spent the first 15 weeks of my retirement skiing, much more fun !!!!

My astronomy is being funded by ebay ...... I am selling off expensive junk that I have gathered over the last 30 years.

It is all about priorities and choices for us ordinary folks.
For example: this is being sold to fund an observatory/mount and TSA120

[Kunama]

Remember also that you don't need the same amount of money, I am now able to sell off 2 cars, I don't drive 40,000 klms a year to my job in Canberra, I don't need the tools, workwear, the take away foods, $5 cups of coffee etc. I am saving $9000 a year just on petrol bills and vehicle expenses.

You cannot put a $ figure as a rule, each person's $ requirement is different. You really only have to get to age 75 with most of your spending, after that a good book and a bowl of soup will keep you happy for hours!

[GrahamL]

800 k eh :question:I'm sure heading for trouble then.:)

[Kunama]

Home brand baked beans for you!

[multiweb]

Cold on toast unless you've got gaz. ;)

[PCH]

That's the great sadness Graham, - most people will be well under-funded. And the government is set to hand out ever decreasing amounts. It's so important to try and set yourself up when you're younger and are more able.

[Larryp]

Its quite dramatic, too, how great the effect of divorce is. You can put away adequate money for retirement whilst married, but so many marriages end in divorce and neither partner really ends up with enough money.

[GrahamL]

Yes theres sure a lot of things that can skittle our plans for retirement . Divorce, serious injury ,death another ;),the first one you can scramble out of in time the other two, probably not , from experiance :)

[Barrykgerdes]

When calculating an investment for a retirement income the safest way is to look at what you require to live on comfortably eg $30000 per year today. This amount will class you as a low income earner with no tax to pay. $30000 tax free is a lot of money if you don't have a mortgage or children to support and are happy to drive a Fiesta instead of a SUV.

Calculate how much you will need to invest at about 2.5% to return this amount (about $1200000). The difference between what you get as a dividend and this figure will be the CPI that must be reinvested to keep your earnings indexed.

Barry

[PCH]

Think you missed a '0' off your $120,000 Barry - whoops !

[Barrykgerdes]

I did too
fixed!

Your heirs will prefer this method because when you kick off the capital will go to them.

Barry

[tlgerdes]

You're more valuable to me alive than dead :thumbsup:

[Kunama]

We believe you ................;);)

[Barrykgerdes]

It doesn't apply to me because I don't have any capital tied up in my indexed super.

Barry

[ZeroID]

Well I'm stuffed then.. 3 recessions, 1 divorce and a redundancy, I lost over $250,000 when my super fund in a 'reputable' mortgage\insurance investment went belly up ( only recovered $17,000 and that is still being paid out in annual installments ) and 'retirement' is only 18 months away. Yeah right !!
I suspect it will be work till I drop for me basically. Keep me busy I guess.

[Rodstar]

We have been using a financial planner for about 3 years, Troy McPhee (www.adviserfp.com.au). The key message he gives us is that the decisions we make when we are young have a huge consequence on the funds we will have in our old age.

If I squirrel away a little bit each year, when I am young, I can double or triple what I will have in retirement.

When we rely exclusively on the 9% super plan, in most instances this will provide insufficient funds for retirement.

Every year that we postpone retirement, we considerably increase the value of our retirement savings, as those savings have had an extra year to grow before we start chipping away at them. Retiring at 55 sounds attractive, but could be a very poor financial decision in the long run. Even pushing on to the age of 58 or 60 will make a huge difference later on.

Most financial planners will charge their fees from your super monies, so you do not have to part with your current cash flow to get that advice. It has been great for my wife and I, as for a modest fee from our financial planner, we have been set some achievable targets which will make a huge difference in retirement. Having someone to report to each year keeps us accountable, and takes some of the angst out of the discussion that might otherwise exist between spouses with competing ideas.

I cannot recommend more highly the value of getting some advice from a financial planner. They are like consulting a doctor, except for your financial health rather than physical health.

There are some shonksters in the financial advisory industry, so one has to be careful. As a litigation lawyer I have brought cases (and have one currently) for clients who have lost lots of money in dodgy investments. Be careful who you consult.

[Larryp]

I used a financial planner from my bank-very happy with his advice

[Richard Gamble]

We should plan to retire in a place like Bali, ad it is a lot cheaper and our Aussie dollar worth a lot more.
Heck, follow the law of nature and moves overseas wherevthe cost of living is a lot lower.

[MortonH]

I work in superannuation for Russell Investments. I can't give advice, but some of my colleagues can.

http://www.russell.com/AU/individuals/superannuation/

Cheers

[PCH]

Why, what did he suggest Larry? If it's not a rude question.

[OICURMT]

Reading through this tread, I've noticed a few people missed out on a simple point with respect to what to have in the bank against what you can withdraw each year and "still make it"... Barry hit it on the head... Interest vs Inflation...

You should be aware of the following:

When calculating what you really want/need/desire in the way of an annuity, you need to account for not only uncertainties in the way of expenditures, but also for fluctuation in the interest rates and the consumer price index, CPI (rate of inflation).


Therefore, a 3.5% interest rate does nothing for you if the CPI sits at 3.5%, as your purchasing power decreases over time.

I've included a table I banged together in 30 seconds to illustrate my point... (took me longer to write the post, so hopefully my table is correct) :D

Assuming $800k, 3.5% interest, 3.5% CPI, living on $43.5k per year (fixed!), you are broke in 30 years (assuming no taxes... yea right!)

The right hand column in the actual purchasing power you have for the principal in today's dollars. What this means is that in year 10 (for example), $100 dollar will only buy the equivalent of $70 dollars worth of "stuff"... in other words, the $618k you have in the bank only can buy $433k of stuff in today's dollars. This results in you having to spend more each year if you want to maintain your "life style".


Interesting comment about the $5 coffee. In 10 years time (@ 3.5% CPI), a cup of coffee will cost $7.05 ;)

[AndrewJ]

Gday Rod

Assuming someone doesnt come and pinch yr nuts along the way.:rofl:
Its getting harder to find investments that will still be there later,
yet provide the growth / interest required to keep up with inflation,
and i suspect its going to get much worse in the near future.
Too many unemployed "financial types" will be out there trying to get their fingers into the super money pot, vs go on the dole.

I always ask em why they still work for a living :question:
Ie if they are so good at it, why dont they take out a loan and invest it wisely, then live off the proceeds.
Investing only for themselves, paying no fees, knowing how to dodge tax etc, means they should be able to do this much better if they are their only customer.
Getting investors to pay their wages seems a better deal.

Its a bit like the old story of who gets rich in a gold rush
( and its not the miners ;) )

Andrew

[Barrykgerdes]

I have never had any faith in super funds or financial planners, other than my own super (CSS). These funds and planners are businesses and they aim first to make a nice living for themselves and if there is anything left over it goes to the fund.

I remember the first 3% compulsory levee 20 years ago. I was in one but never relied on it and when I cashed it in at retirement there was 20% less than my employer had put in.

I calculate the value of my super by knowing what it returns then backtrack from what I can receive from a secure investment eg fixed deposits, less the inflation rate and any other charges. Thus for a $30000 indexed pension you can't rely on anything better than about nett 2.5% return. This of course equates to about $1.2m.

If you have this amount invested at retirement and you own your own home you are pretty much assured of a comfortable retirement. You won't get this from any of the super funds so you need to make your own provisions.

Barry

[Poita]

Yeah, divorce punches a big whole in your retirement plans. In my case it meant the property had to be sold at a terrible time, so it lost money, I ended up back at about the same place as I was at 20 years old, but with 23 years less time to prepare for retirement! It also means owning a home before I retire is far less likely, (I'm stuck renting in a very pricey rental market) which in turn puts a greater financial drag on any retirement income. Lost a year or two of income for medical stuff too.

50K pa would be great, I'd be getting a $20,000 pay rise :)

So, yeah, if you are young, get that house paid off, and stash money away, retirement age comes around faster than you can imagine, and if you live a long life, you will need a fair lump o cash when you retire.

[Kunama]

My 2cents again: Many people worry too much about wealth in retirement and forget that life is about the journey not the end.
When I was in the AFP I saw many many friends work shift work all their lives, refuse to consider early retirement so they could build up their nest egg and then they retired at 65 and I attended their funeral within 3 yrs. Food for thought?

[Larryp]

Hi Paul
He suggested rolling most of my super and proceeds from the sale of my business into an allocated pension, keeping back about $10,000 in a cash management account for high interest/ready availability.
The money was, of course, invested with the bank's investment/superannuation arm using a safe strategy of only having 30% in Aust/International shares.
Since I am still working part time, the adviser suggested I draw the minimum annual amount allowed by the government, and consequently the value of the investment is increasing even after I draw a set fortnightly amount, and this is not taxable or considered as income when applying for the aged pension.
To sum up, I get a part aged pension, an allocated pension, income from work, and I have a Centrelink concession card-pretty good!
There is no fee for the advice-only a relatively small fee for setting everything up if you decide to go ahead, and a small ongoing annual management fee.
Don't know if I can say WHICH BANK here.

[ZeroID]

Yeah, for sure. My Ex never considered having her own super setup so when we split she hooked half of mine. <insert appropriate swear word here >. We did ok on the house sale as we had reasonable equity although we lost capital value (bad time to sell as well) but that just became the deposit on my next place when I got settled and married again. Fortunately the kids were young adults so didn't have the support problem but with the recessions, redundancy etc had to start all over again.

My lovely wife in this marriage has been brilliant. We were both earning real good for while and hit the mortgage hard and when redundancy happened the payout almost finished the mortgage so we are basically debt free there but my chances of getting anywhere near a sustainable investment for later is zero.

And what investment is safe these days ? My $250k was in a very reputable (supposedly) big insurance company that just belly flopped. The advisor I had at the time is still embarrassed to see me after the advice she gave. She sends me a calendar each year ...:sadeyes:

Makes me laugh, the finance people all complain that the little investors are all sticking their money in bricks and mortar, not companies and they wonder why !! At least it yours and you have some control. :shrug:

[PCH]

Hey Larry,

thanks so much for that detailed reply. I appreciate the details cos that's where the real information is. Can you tell me how much you're allowed to take as an 'allocated pension' from your fund such that it isn't considered income as you've described. That wouldn't be considered 'prying' would it? It must be a figure that applies to all of us I'd think :)

Thanks again Larry - all the best in your executive semi-retirement ;)

[PCH]

You're right mate - it is most definitely about the journey - well said. Even so, we do have to make some sort of assumption that we're still gonna be around after working age, and will therefore need to pay our way - and enjoy ourselves. We probably shouldn't assume we'll have snuffed it at an early age. Try to cater for some of each maybe :)

[PCH]

A few years ago, I arranged some insurance through a guy I knew from a business club. This was in the height of the boom - around 2007, and this guy also was a financial advisor, although I had nothing to do with this part of his services - but it IS a part of this story.... read on !

A year later, I got my statement showing the $3k I paid for my insurance premiums. Also included was a surprise first page from someone else's Super Fund Statement - whoops!

I didn't know this other guy, but his statement made for interesting reading.

He'd started his fund at about the same time as I took out my insurance, so about a year ago. He'd paid in $200,000 .... and after just one year in the boom we were all enjoying back then..... his fund had lost the staggering amount of $80,000 !!

They had managed to whittle his $200k down to a bit over $120k at a time when a monkey could have made money on stocks.

Be very careful of Managed Funds that invest the larger part of your money on stocks, and if at all poss, set up your own SMSF. You won;t regret it!

[Larryp]

Paul, the minimum amount you can take is dependent on how much you have invested-a percentage. I don't have the actual figures with me at the moment, but this is something a financial adviser can tell you. You can take much more on a fortnightly basis if you want, but then your money will eventually run out.I can tell you my bank adviser's annual fee is .44% of my investment, but they are increasing the value of my investment-mine has increased by about 5% since March this year, and thats AFTER they make my fortnightly payments.
All I can suggest is you talk to your bank's financial adviser and get all the information. I do like having my money invested by the bank-I think its much safer.
When I retire completely, I won't have it so good-just the aged pension + allocated pension, but its a whole lot better than just the aged pension.
As I said in a previous post, divorce knocks the hell out of retirement finances, and I would be far better off without the divorce.

[Poita]

I agree that life is the journey, but you may have 30 years of that journey after you have lost the capacity to earn.

I'd rather spend those 30 years with options to live it to the full. It is about balance like anything else, but when you are young, you can jam some money away that will pay off handsomely when you are older, and there are lots more ways to have fun that don't cost much when you're a young bloke ;)

[Kunama]

I agree that it is about balance and expectations.

I am very fortunate to have married someone who is very good with money, if I was left to my own devices I would have been broke a long time ago! :question:

[Tandum]

Looks like a lot of people are thinking along the same lines.

I asked this originally as the misses was given the arse from the public service after 40years of service and if she doesn't kick super over into an invested pension before the out date, they simply move all the cash onto a stock market investment for her as she's no longer an employee.

I notice some people claiming $30K/Yr will provide a comfortable retirement. I'm not sure where they live but here Electricity/Rates/Water/Insurance and Communications costs $30K/Yr and you need to eat as well.

Being the public service, QSuper has a wing called QInvest which do nothing but work this stuff out. It looks to be handled now and they are claiming the $800K odd we have available will pay $45K/yr till we are 90.

I'm yet to see the documents to support this but many ex public servants swear by them.

[Barrykgerdes]

Living on your income whether it be earned or a pension depends entirely on your ability to manage what you have. My mother never worked officially and lived 38 years on the OAP quite well. She left $65000 in her will when she died.

I live extremely well on $30000. The essentials of living such as rates, insurance, electricity, gas, communications do take a large proportion of the income eg in real terms $8283. Not including petrol or other car running expenses or rents . That leaves $20000 for entertainment and eating. Food etc for two is an average of $800 per month, I pay half about $5000 per year. We eat out with the family (birthdays etc) about 5 times a year at a cost between $250 and $700 a time and I always pick up the tab.

Barry

PS I do have an advantage that I have a well equipt workshop and can do all my own repairs and maintenance and with the over generous solar electric scheme I collect $1600 for generation after paying a similar amout for electricity. B.G