Don't think this is too much of a thread drift...
Assuming one is mortgage free, what annual ££ income do peeps think would provide a 'reasonable' standard of living in retirement?
Obviously there will be many differences in what people think is 'reasonable'! I would like to be able to run my home and pay those bills, eat and drink reasonably well, have the occasional night out, perhaps have 2 'cheapie' European holidays a year, run a newish can and of course, also run and enjoy the Morgan!...
A completely impossible question to answer, I'm afraid - but a lot less than you might think if you are modest in your requirements.
Always remember that happiness and contentment is not about being able to have whatever you want, but in wanting whatever it is you have.
I love your last statement, it is so clever and true.
I think I am the wrong person to ask, my take home pay after tax from my pension is basically the same as my salary was because I was sacrificing as much as allowed into super while working. But I found my expenses has not dropped, firstly buying an investment house for family reasons cost a lot and secondly my cat got cancer and I have spent $12,000 on vet bills in the last 3 months. However I do agree that for the average person retirement should be cheaper than working, going to the movies for no other reason but to avoid the crowds probably also means going when it is cheap during the day on Tuesday. Same with holidays avoiding school holidays etc. Plus not paying for that suit to be dry cleaned every week, parking in town etc.
It is probably different for different countries but in Australia when talking to younger people at work they would say "You are so lucky, I will never be able to retire, the government will keep putting the retirement age up". I would explain to them is that there are two retirement ages - the age 60 when you can access your own superannuation to be a self funded retiree and the age of 67 when you can get the government old age pension based on your assets. I don't care about the old age pension because I will never get it but you should be able to retire at 60 on the other assuming you put enough into super. They asked what is enough I say well the government has put a limit in place of $1.6M for account based pensions and that is what I think you should aim for. I do agree with them that the rules can change however I expect the age you can access your own super is much less likely to change than the age you qualify for the age pension. Although it was changed from 55 to 60 a while ago I doubt it is likely to change again.
Achieving $1.6M in super by 60 is reasonably achievable, I did a simple spreadsheet for two staff at a similar age and showed that with not much extra contributions the power of compound interest got them to $1.6M by 60 and that was with pretty conservative earnings.
I then explained with an account based pension you must withdraw a minimum amount each year and at age 60 is is 4%, so with $1.6M you take $64,000 a year or $5,333 each month as a tax free payment to live on. You and your partner can both do it and that is over $10,000 a month tax free for the household. That makes them happier to see that retirement under the current rules is quite possible without a lot of extra money being contributed to super now than they already are doing.
While I am showing them how to achieve $120,000 a couple tax free income super calculators generally show $62,000 as a comfortable retirement for a couple. So really they should be easily fine if both partners aim for the $1.6M super limit as they will have double the specified comfortable retirement income.
The following is the rules needed for a tax free account-based pension
How much do I have to withdraw from my account-based pension each year?You will have to withdraw a minimum amount each year, depending on your age, see the table below for details. If you have met a condition of release the maximum you can withdraw is the account balance, however if you are still working and are using a transition to retirement pension you will be limited to withdrawing a maximum of 10% of the balance each year.
Age Annual payment as a % of account balance55-64 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95+ 14%
How often are income payments made?Income payments can usually be made monthly, quarterly, half-yearly or yearly and continue until the account balance is exhausted.
