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How much income will I need in retirement?

I once sat down with a couple who wanted to know how much income their portfolio was going to produce for them. When I said, with some confidence, that they can draw an income reliably and securely for the rest of their lives of $100,000 a year they stared blankly at me for some moments and then burst into tears claiming that this is never going to be enough to sustain their lifestyle. 

Another time I worked with a single gent who, when I asked what sort of income he will need to meet his retirement expenses, said that he happily lives on $100 a week! He also said that he couldn’t figure why he was still single. 

I lead with these examples because everyone’s lifestyle in retirement is different hence the income needs are also going to be different. Sure, there will be many similarities but moving into retirement is stressful enough without having the shock of finding you won’t have enough income or that you’ve scrimped and saved for so many years only to find that you’ve sacrificed too much along the way.  

Having a little idea of what income is needed for you to live your richest life in retirement is not difficult if you follow a simple process. 

Chicken or the egg?

What most retirees find when reaching retirement is that their income is determined by how much they’ve saved. The more they’ve saved in their retirement kitty then the higher their income will be. 

More or less anyway, some persist in living beyond their means and hope for the best but this isn’t really a strategy we recommend you try. 

A very rough rule of thumb to work out how much income your retirement savings will produce is by dividing what you have saved by twenty. Invested wisely and with no speculation, this will most likely produce you a regular and reliable, index adjusted income for the rest of your life.  

For example, if you have $1,000,000 then you could draw an annual income of $50,000 every year, increasing with the rising cost of living, essentially forever. 

The problem here though is that this way of winding up with a retirement income is a bit like the tail wagging the dog as it’s your income that you need to rely on, not the invested capital. The invested capital can’t pay the bills, only the income can. 

To plan for retirement effectively, the income you need should be the driver for how much you’ve saved (or need to save). You can use the twenty-times calculation in reverse eg. if you want a $50,000 annual income then you’ll need $1,000,000 (20 times the income) invested wisely so that you can live your richest retirement life. 

Budgeting has never been more important

Budgeting is a word we all seem to cringe at however it’s really just the process of identifying where your income resources are expected to go. The process of budgeting is actually a very creative process and should be done with an air of optimism.  

What hurts though is sticking to the budget so I’ll leave that one to another day. 

Retiring is a time that is full of uncertainty, particularly if you’ve seen friends or parents retire who found they ran out of money or suffered with the loss of purpose resulting in giving up work. 

When you set a budget you go through the process of working out what you will be spending your money on which helps align your expenses with what is actually important to you. It’s a way of helping to manage your expectations of retirement thereby giving you the clarity you need to answer your other retirement questions. Questions about types of holidays, car replacements, gifts to the kids and even choices about part time work. 

One of the very first clients I met in my financial advice career was George, an elderly Greek immigrant who had just sold his inner-city suburban Brisbane property portfolio to developers for over $30m. He was quite pleased as each property he had purchased very cheaply over the years and he was fortunate to own them at a time when inner city suburbs came into vogue. However, he was terribly stressed at how he could invest his money going forward in a way that would give him the income he needed.  

We spent a lot of time on his budget and what he needed to pay his bills and spend time with his family, his dream of his richest life, was a mere $600 per week. It wasn’t until we went through this process that his stress levels disappeared. 

It’s not the scale of George’s assets that are important here rather that even though George had the assets, he still had the same stress that we all have when faced with financial uncertainty, and preparing a retirement budget helps you to clear the air. 

What’s your ultimate objective

Once your budget is set, you now have the clarity that your nest egg is going to produce an income for you that is secure and reliable. However it may pay to spend a little time factoring in expenses beyond your everyday needs. 

Retirement is a great time to achieve the things that you didn’t get the chance to earlier because of work and family commitments.  

Have you spent much time considering what your greater goals are? Would you like to make sure that your future generations are well educated and trained? Are there causes or charities that are close to your heart that you want to support physically or financially? Do you want to ensure that your descendants are financially savvy so that if they inherit the money that you’ve accumulated they are more likely to act wisely with it? 

This is your retirement and the savings you’ve accumulated are your reward for sacrificing shorter term wants for longer term gains. Take the time to understand what your ultimate objective is for your money, your peace of mind depends on it. 

It’s time to do a little planning

Like planning a holiday, planning your finances should be quite simple but it’s getting everything organised that is rarely an easy exercise. 

To get started planning your retirement income, follow these three steps: 

  1. Fill out a budget with a vision of yourself already retired and doing all the things you want to. If you don’t have a template, go to and download a budget planner, if you want some help to get started, check out the example budget in the Retirement Living Standard  
  1. Using the 20X rule of thumb, work out if you have enough to produce the desired income and achieve your ultimate objectives 
  1. Adjust and refine your budget and ultimate objectives to match your income and retirement savings.  

Following this process will help you gain clarity and feel more confident in the years ahead. If you’re not much into shocks and surprises, particularly with your money, then now is the time to do a little planning. 

Yes, right now….  

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