Here’s why you need $1.29 million to retire comfortably and the not-so-secret way to get it!

You might think if you were to retire with $1.29 million you could consider yourself to be retiring rich…but guess what, it turns out that’s how much you need to have accumulated just to be comfortable according to the latest findings by actuarial firm Accurium.

According to the findings which were published in the Australian Financial Review (AFR), self-managed super fund (SMSF) members on average believe they need $70,000 per couple per annum to retire comfortably. To achieve this level of annual retirement income from the age of 65 requires a SMSF couple to have accumulated $1.29 million.

It’s a hefty fund balance and is above the average fund size which currently stands at $1.1 million. So what can Australians aiming to retire comfortably do to achieve this goal?

The not-so-secret secret!

Assuming you could put aside $230 per month over a 40-year working life, by the time you reach retirement you’ll have saved $153,600.

“That’s not enough!” I hear you scream. You’re absolutely right, that is nowhere near the desired total and goes to show that hard work and diligent saving alone, is rarely enough to make for a comfortable retirement.

Rather, what is required is the not-so-secret, yet often neglected financial wonder of COMPOUND INTEREST.

Consider this…instead of just saving $320 per month you also invest those savings annually at a rate of 9%.

That’s a decent return to achieve over a long period but it’s not impossible. Fund managers at firms such as Platinum Asset Management Limited (ASX: PTM) and Magellan Financial Group Ltd (ASX: MFG) have achieved rates above this. However, I’ll admit they haven’t done it for 40 years yet.

When you invest your savings you allow the magic of compounding to kick in. Over a 40-year time frame, at 9%, that $153,600 in savings will attract over $1.14 million in gains, leaving you with a total of $1.29 million to fund that comfortable retirement.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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