If you wanted to retire at 60 in Australia, would $2 million dollars be enough to retire with?
For many people, yes, $2 million would be ample. Although for those who are accustomed to a more luxurious lifestyle, this amount may not be sufficient to achieve or maintain the quality of life they desire.
In the video and blog below, we discuss a drawdown retirement strategy for a person with $2 million and things to consider when determining how much money you truly need during retirement.
DISCLAIMER – The information provided in this blog is general and does not consider your individual financial needs or objectives. It does not constitute personal advice. We recommend seeking out professional and independent financial, legal and tax advice which has been designed for your individual situation before acting on any information contained below.
Is $2 Million Enough to Retire at 60 in Australia?
The amount needed for retirement will be different for everyone, but for most people $2 million will be more than adequate.
Here’s a simple example of how a person could utilise that $2 million dollar amount over a 30-year period (60 to 90 years-old):
A 60-year-old has $2 million in financial assets and wants to draw down to zero by age 90. How much can they draw per year?
Well to answer that we need to make an assumption on earning rates on the investment and inflation rates.
In doing so, we believe that with $2 million dollars you could roughly draw about $115,000 per annum increasing with inflation throughout 30 years retirement. This amount should create a fairly comfortable retirement for most people.
Alternatively, you could draw $150,000 per annum increasing with inflation for the first 15 years, then reduce that to a much more modest $70,000 for the remaining 15 years (when including a top up from the age pension as your assets would be below the threshold).
Questions for Planning Your Twilight Years
There are of course many considerations which may impact the above and whether it will be sufficient. Here are some of them:
- What is your housing situation?
- Do you own a house? Are you paying a mortgage? Are you paying rental expenses?
- If you own a house, does it require a lot of ongoing and costly maintenance?
- How much is the home worth and if you plan on downsizing one day would you be able to add to your $2 million nest egg?
- What does your retirement lifestyle look like?
- People are unlikely to travel consistently throughout their entire retirement and many will probably spend more in their 60s than in the later decades. So, in the first 10 years of retirement someone may prefer to draw down at a much quicker rate, maybe $200,000 a year, and travel frequently and spend more money. If you do spend $200,000 a year in those first 10 years you will reduce your assets fairly quickly and going forward you’ll need to drop the rate you’re drawing down significantly.
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- Age pension:
- The age pension system rewards you for spending a lot of your money, so if you do reduce your assets to a point where it’s below the threshold, you may start getting some age pension. If this is the case, it could be that you draw $200,000 in the first 10 years (as discussed above) and have a great time while you’re fit and able to, and then from 70 to 90 your expenses might drop down to say $70 or $80k a year when you’re no longer travelling as much – perhaps with some age pension supplementing your income.
Preparing for a Comfortable Retirement
Would you like personalised advice about planning for a comfortable retirement?
Precision Wealth Management is a local, privately-owned financial planning firm based on Brisbane’s northside.
Our certified advisors work with each individual client to determine the best wealth creation strategy based on their unique situation.
We strive to stay at the forefront of the industry, and our investment approach is based on decades of research.
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Our services include Superannuation Advice And Planning, personal Insurance Advice, Budgeting And Cashflow Management, Investment Strategy And Advice, Aged Care Financial Advice, Retirement Planning Advice, and Debt Reduction Financial Planning.
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