Motley Fool Australia

How much do you really need to retire these days?

Worried about retirement? You’re not alone…

Ask any Australian on the wrong side of 40 what their biggest financial worry is and you might get a mixed-bag of answers. You might hear about low returns on money in the bank. Maybe you might hear about the rising cost of health insurance or your mortgage payments. You might even hear complaints about the cost of a beer at the local pub.

But according to a survey from news.com.au, our biggest collective financial worry is fast becoming financial security in retirement, alongside the cost of living.

That’s right, since 2017, retirement worries have leapfrogged from fourth place to second place.

That’s not really a surprise when over two-thirds of those surveyed stated that they thought a balance of no less than $750,000 in savings and super was necessary to retire – and 45% stating they would only feel comfortable with a seven-figure number.

How much do you really need to retire?

The report quotes the Association of Superannuation Funds of Australia (ASFA), which states that “a single person aged around 65 would need just over $28,000 per year or a couple just over $40,000 to have a ‘modest’ retirement.”

Those amounts are slightly above what you could expect from solely receiving the government’s Aged Pension, but still not an extravagant lifestyle by any means.

But ASFA also states that if you want “a ‘comfortable’ retirement – with the occasional overseas holiday and the ability to dine at restaurants and buy nice things – you will need just above $44,000 per year, or more than $62,000 a year for couples.”

Is that achievable?

With a deposit of $750,000, you would need to achieve a yield of around 3.73% per annum to gain a stream of $28,000 a year (or 5.33% for the $40,000 stream) without drawing down on your principal. Both are arguably modestly achievable with a collection of franked ASX dividend shares.

Unfortunately, our record low-interest rates these days make it hard to achieve without significantly utilising the share market.

But if you want the ‘comfortable’ lifestyle, you might want to aim a little higher towards the million-dollar mark to make it happen. Even with a million dollars, a couple would need to achieve a yield of around 6.2% to get to an income stream of $62,000 a year (for singles, it’s more like 4.4%).

Foolish takeaway

I think the best strategy to achieve the retirement you want is to start planning early and maximise all available tax breaks and benefits such as the superannuation system.

Compound interest and dedicated savings are always winning strategies for retirement planning, so the earlier you use them, the more likely your dream retirement will become a reality.

Where to invest $1,000 right now

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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