How Much Is Enough?

This article first appeared in The West Australian, Your Money, on 24 March 2025

There’s no such thing as a one-size-suits-all retirement … so plan accordingly

One of the most common questions financial planners hear is: “How much do I need to retire?”

There’s no shortage of opinions on the matter — countless studies, reports and articles attempt to put a number on it. But without understanding a person’s individual circumstances, the only honest answer is: “It depends.”

Retirement isn’t a one-size-fits-all equation. Just as we all live different lifestyles while we’re working, the same applies when we stop.

The key to a fulfilling retirement isn’t just about hitting a magic number — it’s about making sure your finances align with the kind of life you want to live.

If you take no proactive steps, you’ll have to settle for what the government says you should retire on. As of last Thursday, a single retiree on an age pension from Centrelink can receive up to $29,874 a year, while a couple can receive up to a combined $45,037.

Australians are very fortunate to have this safety net — but is it enough?

The Association of Superannuation Funds of Australia regularly updates its Retirement Standard, which offers two benchmarks: a “modest” retirement, which it says costs $47,470 a year for couples and $32,897 for singles; and a “comfortable” retirement, which it says requires $73,077 a year for couples and $51,805 for singles.

The scary bit here is that even the “modest lifestyle” is about $50 a week higher than the full age pension, meaning many retirees relying solely on government support may find themselves having to make tough financial choices.

The word “comfortable” is subjective. Some might see it as enjoying regular dinners out, holidays and a well-maintained home. For others, it’s simply having financial security without the stress of wondering if the bills can be paid.

The best place to start is by looking at what you spend now. How much do you need to cover the essentials? How much do you want for the extras that make life enjoyable? And are there any expenses that might change — like a paid-off mortgage or reduced commuting costs?

Once you have an idea of your ideal retirement income, the next step is reverse-engineering a plan to work out how you’ll accumulate the investment capital to support that lifestyle.

And this has many variables, too.

Some retirees want to leave a financial legacy to their families, while others are happy to enjoy their savings and gradually run them down. This decision has a huge impact on how much you’ll need.

For example, if you want an annual income of $80,000 and plan to live off investment returns without touching your capital, you’ll need about $1.6 million, assuming a 5 per cent return in a tax-free superannuation pension.

But if you’re comfortable drawing down your savings over time, you might only need $1.2 million — especially if you’re open to supplementing income with government benefits later in life.

The way you invest will also determine how much you need. Someone with a growth-focused portfolio — who’s willing to accept market ups and downs for the potential of higher long-term returns — might need less capital than someone who prefers low-risk investments with steady, but lower, returns.

Using the same $80,000-a-year example, a retiree who invests in a growth-oriented portfolio may need $1.15m. A more conservative investor, who wants lower volatility, may need $400,000 more to achieve the same outcome.

There’s no right or wrong approach — it’s about finding a balance between comfort and financial security.

Two retirees with the same amount of savings can end up with very different incomes depending on how their money is structured.

Take a couple with $2m invested, earning a 5 per cent return — so, $100,000 a year.

If their money is in superannuation pension phase, their $100,000 is tax-free and that is what they receive net.

If the same amount is held in one person’s name, and invested in exactly the same way, about $23,000 could go to tax, leaving them with just $77,000. So to match the $100,000 net, they’ll need to earn $134,000.

If it’s held in a discretionary trust and split evenly, the required pre-tax income would be about $124,000 to end up with the same $100,000 after tax.

Poor structuring could mean needing 25 to 35 per cent more in savings to maintain the same lifestyle.

The right tax strategy can make a significant difference in how much you really need to retire.

There’s no universal answer — only what’s right for you.

The key is to start with your own lifestyle and expectations, then work backwards to determine how much capital you need to support it. Consider your investment strategy, your approach to risk and whether you’re comfortable drawing down on your savings over time.

And most importantly, don’t let someone else’s definition of a “comfortable” retirement dictate yours. Define your own retirement, then make a plan to achieve it.

Raymond Pecotic is Managing Director of Empire Financial Group