When I ask clients how they’re progressing towards their retirement, they will often say to me “Well, I think I’m behind, because I don’t have $1 million dollars and I’ve heard I need $1 million dollars to retire”.
Whilst it can be true for some people (that they’ll need a million dollars to retire), the problem with making a blanket statement like “you need a million dollars to retire” is that it doesn’t really take into account anything to do with your personal financial goals and wishes, and the lifestyle you want to have in your retirement.
The statement that you need $1 million dollars to retire comes from some Government research that essentially says you need about $60,000 a year to live a comfortable lifestyle in retirement.
It assumes that you would invest the million dollars and then draw an income from that throughout your retirement, and that with a lump sum of that size, the investment returns will be enough to maintain your lifestyle.
But it doesn’t appear to take into account the following:
- That you have access to things like the age pension
- That not everyone wants or needs $60,000 a year to maintain their lifestyle
- Some people will be more comfortable with less
- Some people will need more income and as such more superannuation
- Some people don’t want to or need to take regular overseas holidays
The key is to sit down, begin to articulate what your actual financial goals are, what you would like to be able to do in retirement, and then figure out how much income you need to have fun.
- What the costs for your holidays might be?
- Whether you might like to help out your children?
- How often you want to go out for dinner?
Then you’ll be able to get a better understanding of what you’ll need for retirement and whether you’re on track.