What is the magic number you need in the bank to retire comfortably?
For a long time, we were lead to believe it was $1 million…
That’s a nice rounded and achievable figure.
But in this modern age can you really retire comfortably on $1 million anymore?
Every year our cost of living gets higher and higher…
Taxes, rates and superannuation funds change with the wind and there is little stability in the modern economy…
How much money will you need to retire in comfort?
Let’s look at retirement facts and figures…
For argument’s sake, we will use national average figures for single people. We’ll also price up costs in today’s money rather than trying to predict the inflation rate of the dollar….
The average Australian retires at around 63 years old.
The average age of death in Australia is 82 for men and 84 for women.
So we’ll say you have 20 years relying on your retirement fund…
This gives you $50,000 a year or $4,166 a month as your ‘income’ before we take out any taxes.
Assuming you’ve paid off your mortgage by this point, here is a rough breakdown of your essential monthly expenses. These are just average costs calculated using data from 2016…
- Food and groceries – $500
- Home insurance, council and water rates for a small home – $200
- Utility bills for a small home- $200
- Telephone, mobile phones and internet bills – $200
- Car insurance and vehicle costs – $300
Total – $1,400
Which leaves you with $2,766 left over…
These rough calculations do show that $1 million is definitely enough to live on during retirement.
However, a $1 million retirement fund leaves little room for comfort and a very small emergency safety net.
Bear in mind we have not calculated the costs of all the extra things you will need to be paying for like:
- Clothing and shoes
- Cosmetics or beauty treatments
- Medical costs and health insurance
- Family expenses
- Repayments on personal loans, car loans, credit cards
- Pet food or vets bills
- Takeaway food and restaurants
- Sports and hobbies
- Entertainment including films, theatre, newspapers, magazines, books and music
These are all the items that make your life comfortable.
Remember that as time goes on your family will grow and your responsibilities will too. Think about the amount you spend per year currently. Will you be able to maintain that lifestyle in retirement?
Will you be able to provide a comfortable lifestyle for your loved ones as well?
Could you afford to help children get on to the property ladder or university educations for grandchildren on $50,000 a year?
Could you afford private health care or even basic Medicare?
Remember that seniors spend a lot more time and money at the doctors than you do now.
There is a big difference between living and living comfortably…
Your retirement is supposed to be an enjoyable time. This is what you have worked hard all your life for.
Do you want to spend it counting dollars and living frugally?
On a $1 million retirement fund, there is very little money available for nice things, cars or foreign holidays…
Don’t forget that all the calculations in this article were based on today’s money and today’s prices. We don’t know how much you’ll getting for your dollar in the future. But one thing is for sure…
Your retirement will cost a lot more than it did for the current pensioners of Australia.
In order to live comfortably in retirement, you’re going to need a minimum of $1.5 Million in the bank…
Or at least have some assets that add up to that value that you can sell off as required.
What are you doing to prepare for retirement? Let us know your thoughts and ideas in the comments below…