This is how you earn $60,000 in retirement

The problem most people have in planning for a comfortable retirement is, well, they don't plan.

Which is a shame, because a sensible plan is relatively straightforward to put together. And with just a small amount of discipline, a sensible plan — coupled with a sound investment strategy — can ensure you set yourself up for a very comfortable retirement.

There are three key ingredients to planning for a comfortable retirement:

  • Spend less than you earn.
  • Invest your savings sensibly.
  • Let time, and the power of compounding, work it's magic.

Your goal of a comfortable retirement is made that much easier thanks to the benefits of superannuation. Contributions are taxed at a very low rate, and after you reach 'preservation age' — usually at 60 — your income is likely tax free.

Also, if you are invested in quality companies that pay fully franked dividends, you will be able to claim back those franking credits as cash!

And if, by following those three principles of long term wealth creation, you have amassed a sufficient amount of capital, you can generate a very comfortable income in retirement without ever having to touch your nest egg.

Investing for income is important for many Australian retirees

How to earn $60,000 per year in retirement

First, we need to make some assumptions. The most important, being the rate of return our investments can generate.

Though the past 30 years has seen an average annual return of 11.1%, let's err on the side of caution and stick to 10% per annum. It's a nice round number.

According to CommSec, the average dividend yield on the ASX is 4.3%, but we'll assume 4% for our example. We'll also assume all dividends are fully franked — after all, that's what you are likely to focus on if you are in retirement.

Working backwards, if we want $60,000 after tax income from our Self Managed Super Fund (SMSF), and we are getting a 4% fully franked dividend yield, we'd need a portfolio of $1,050,000.

If you are 10 years away from retirement, you'll need to invest about $405,000 today in order to reach your targeted amount.

You can however reduce that to $373,000 if you are able to save $100 each week and invest the savings at the end of each year. If you can save $200 per week, you'll need to invest $341,000 today to reach your goal.

Of course, there are a range of possibilities, but the following table may help as a rough guide:


As you can see, the goal of $60,000 in after tax income in retirement isn't as farfetched as you might imagine — provided you have a sensible plan.

The scenarios sketched out here are of course just a guide, but should serve to help you determine how well you are placed to meet your goal.

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