The Sydney Morning Herald today discussed the effectiveness of careful planning when considering retirement.
The article, entitled ‘reaping the rewards’ assesses the cost of both a modest, and comfortable retirement and how much would be required to achieve either outcome.
The Association of Superannuation Funds of Australia (ASFA) recent calculations mark that a couple now needs $54,562 a year for a comfortable retirement and $31,263 for a modest one – an increase between 2 and 3 per cent of the annual income required a year earlier.
how much money do i need?
A good starting point in determining how much money you need to be financially independent in retirement, is to work out an anticipated annual budget.
You will need to think about hobbies, travel, cars, eating out, entertaining, health, clothing and so on.
If you plan to own your home, remember to include maintenance, rates, insurance and so on. If you plan to rent, include rent in your costs.
Once you have an annual amount that covers all these outgoings, the next step is to decide at what age you would like to retire, or are financially able to if you want to enjoy a good one.
An example may help here. Let’s say you have decided you would need $X a year to fund your preferred retirement lifestyle. There’s a quick calculation you can do to give you the approximate level of accumulated funds you would need to provide this level of income.
You simply multiply the annual income you would like in retirement by 17 if you want to exit the workforce at age 55, multiply it by 15 if you want to retire at age 60, and multiply it by 13 if your proposed retirement is at age 65.
As a rough guide let’s say you decided you would need $50,000 a year in retirement to give you your preferred lifestyle. Using the formula above, you would need accumulated funds worth approximately $850,000 to retire in style at age 55; $750,000 at age 60 and $650,000 at age 65.
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