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Do you need $1million to retire?

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Do you need $1million to retire?

Sep 20, 2021Tyrone Wiseman
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Do you need $1million to retire?


Before we start getting into it, I know there’s probably some of you who have already retired answering “No”, as this email slides into their inbox.


However, this nice round number of $1million seems to keep coming up. 

Mark Bouris the founder of Wizard Home loans and Executive chairman of financial services group Yellow Brick Road, has been quite vocal of the need for Australians to have $1million to retire and live comfortably, all the way back in 2013: Retirement? That's the million-dollar question


Most people think of a comfortable retirement as one where they’re able to (more or less) maintain their pre-retirement living standard. But the longer you are in retirement, the further away you get from your pre-retirement living standard.


This shouldn’t be seen as something that happens just because you are getting older, it could be significant changes to your circumstances from those pre-retirement days such as you might not have the travel costs of going to work, close family members' circumstances may have changed, there could even be a Pandemic that forces you to stay home and stops you traveling and eating out!


We tend to agree more with Sydney University Professor of Finance Susan Thorp, when she states that how much we need to save to achieve a comfortable retirement, depends on our income, other assets, and access to the Age Pension.

So, we believe it doesn’t make sense to choose one lump sum for everyone.


Whilst having that amount of money for retirement doesn’t hurt your chances of having a comfortable life in retirement, a big question has to be, what does comfortable mean to you?


Recently there have been surveys conducted in Australia showing that ⅓ of the respondents, believe that they will always be in debt! 


With Australia having the second largest ratio of household debt to income in the world, if this trend were to continue then people entering retirement with debts outstanding, may not feel comfortable in their retirement.


However, having the 2nd highest debt to income ratio, isn’t necessarily the same thing as the Debt to asset ratio. So, whilst we may struggle to pay off loans based on our wages and therefore making our retirement “uncomfortable”, it may quickly change to becoming “comfortable” if we were to sell that asset, like a property and downsize or do a tree or sea change.


The Association of Superannuation Funds of Australia (ASFA), attempts to benchmark what is an annual budget needed to fund a comfortable retirement. 


They define a comfortable retirement lifestyle as one that would enable an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.


How much all or some of those items (depending on your preferences) cost you each year, will determine how much you need to retire. That may or may not be different to what the former host of the Australian apprentice TV show thinks.