Many people think of their retirement savings as being one ‘bucket of money’. But how much is enough? As a very rough guide, if you want to draw $100,000 a year for the rest of your life, you want approximately 20 times that amount in your bucket (super). This equates to $2 million. If you only want to withdraw $50,000 a year, then you’re looking at $1 million. You should consider the amount you need to withdraw as a percentage – for example 5% each year – to decrease your chances of running out. What you draw will also depend on your lifestyle.
Most of our clients say the number one thing they want to do when they retire is travel. In order to achieve this financially, we’d suggest having two buckets of money – one for your day-to-day expenses, and one for your travel (or whatever it is you wish to do). So if you wanted to travel for the first 5 or 10 years of your retirement (which is when people typically want to travel, especially overseas), this separate bucket of money would ensure you could cover those expenses without affecting the yearly salary you draw from your super.
If you had an extra $100,000 in your super – how long would it last you? Imagining that your core living expenses are $85,000 – you could leave the other $15,000 available for travel. But you won’t need that $15,000 forever – just for the first few years, in this example of travelling.
Let’s say you drew $10,000 extra a year, imagining a 7% return on investment during your retirement. This wouldn’t be the same each year and would depend on your investments going up and down – this is simply an average. Having that $100,000 extra in your super would allow you to draw this $10,000 each year for around 13 years (the amount will grow due to compounding interest). And if you wanted to draw $15,000 a year like in the first example instead, it would last you 8 years.
As always, we encourage everyone to think about the trade offs – what can you trade off now (or cut back on) to save that cash? This extra $100,000 can go a long way, and many of our clients and people we talk to choose to work for an extra year or two to make up the difference or to save for this second bucket of money. Instead of buying that $60,000 car now, think about what you could do with that money if it sits in your super and compounds over a few years.
This separation of funds will help you to negotiate the trade offs, hopefully making the decisions easier for you. In saying that, it is not our job to tell you what to do and what you should be giving up. We believe in enjoying life now, too. If you need some guidance with specific strategies, get in touch with us at
podcast@mo50.com.au. We look forward to being able to help you with your planning.
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