How much will you really need to retire comfortably? That's a big question for all of us, but probably the average person has no good answer.
What's for sure is that you won't be able to save or earn it quickly.
The Australian Financial Review ran an article saying that a person wanting to retire at 65 would need about $1.29 million in superannuation to live comfortably, based on a recognised standard of retirement living. That level would give you $70,000 a year of income for expenses.
According to the study, that was a dollar value that more than half of DIY fund members in the survey wanted, yet interestingly data showed that 30% of funds in pension phase withdrew more than that annually. Even $1.29 million may not be enough for some….
Starting with $10,000, how much would you have to invest and what return would you need to hit this $1.29 million threshold? The long-term average return of the ASX is about 11%, but conservatively let's use 8%. With dividend stocks yielding 3% – 5%, getting the other 3% – 5% from annual share price gains isn't too hard to achieve.
If you invested $500 a month and achieved an annual 8% return compounded monthly:
– after 20 years, you would have total savings of $344,000
– after 30 years, $855,000
– yet after 35 years, you'd finally have the $1.3 million in savings. Success!
So you'd need to start at least by age 30 to retire at 65 with this amount.
That's why it's so important to start planning for this now! It may take 3 – 4 decades to hit this goal.
For a strong start, I would look at these quality dividend stocks paying over 5% yields.
– Insurance Australia Group Ltd (ASX: IAG) is the leading general insurer with such brands as NRMA Insurance, SGIO and CGU. It pays a huge 5.9% yield fully franked and has a good record of increasing dividends recently.
– Telstra Corporation Ltd (ASX: TLS) is well known for its rock solid dividend, which is yielding 5.1% fully franked. As it expands business into Asia, there are strong growth opportunities, which should benefit future dividend payments.
– and lastly Commonwealth Bank of Australia (ASX: CBA), the largest of the big four banks, is also paying a 5.1% yield fully franked. Due to its size and longevity, this stock should be paying dividends for many decades to come. It has a solid history of raising dividends over the past 10 years.
