‘Is $2M in super and savings enough for a comfortable retirement?’

Sep 30, 2020
This reader wants to make sure she's set up to be as comfortable as possible in retirement. Source: Getty.

Q: Can you advise if $1,000,000 in super, plus $1,000,000 in cash in the bank is sufficient for retirement? My husband and I are both retired ages 65 and 77.

A: The answer to your question depends very much on what amount of annual income is required per annum for living expenses. This of course is very dependent on the prevailing interest rates at the time. If for example a $100,000 was required as annual income and a return of 5 per cent was achievable, $2 million would produce income of $100,000 year. However, when returns fall to 1 per cent, which is closer to prevailing interest rates, income falls to $20,000 a year. I would dare to suggest this is hardly enough to live off.

Capital of $10,000,000 would be required at 1 per cent to produce the required $100,000 per annum you and your husband require. Many listed companies have until very recently produced fully-franked dividends of greater than 5 per cent per annum but as we’ve seen over the recent reporting period, many have reduced dramatically or ceased entirely paying dividends to shareholders.

This period is illustrating very starkly that with longevity increasing retiring too early with insufficient capital is concerning. Don’t forget that you need to allow for the possibility of entry into aged care. Refundable accommodation deposits (RADs) can be as high as $1,000,000.

If you have a question for Starts at 60’s money experts, email it to [email protected].

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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