Where will my retirement income come from?

For most people, the post-work income we receive comes from three main sources:

  1. Investments (including superannuation funds).
  2. Drawdowns from the capital we have saved.
  3. Government and/or employment pensions.


The portion of retirement income we fund ourselves comes from investments. The lump sum required for an investment income depends on the return of the investment. If we take the simple example of a 5% return and an income requirement of $40,000, then the capital sum required is $800,000.

Many people go to a financial planner without being clear on how much income they will need in retirement. It’s difficult for an adviser to provide advice when they do not know this figure.

The amount of capital you will need in retirement depends on:

  • The amount of money you will spend each year (including rent, if applicable).
  • Once-off expenditures – such as a car, home renovations, a big holiday, elective surgery if you don’t have private health insurance, etc.
  • Life expectancy – how many years will you need to fund?
  • Bequests – do you wish to leave any money to your children or family?
  • Whether you will be a candidate for aged-care accommodation.

If you don’t know where to start, sometimes the best thing to do is look at your current situation and adjust it to the changed environment of retirement. You can do this by recording in detail what you spend on essential and non-essential items for a period of time (e.g. three months, six months or 12 months).

Alternatively, you could look at what your net income after tax is every payday, and verify that you can live on this (in other words, you’re not living on credit card debt). Remember to factor in whether your mortgage will be cleared before retirement. If it is, you will have more disposable income. Also consider any perks you currently receive from your employment, such as a vehicle, mobile phone or subsidised travel, and what you will need to fund these (if they are still required) in retirement. Conversely, you may be paying for certain employment expenses now that you will not need to pay for in retirement.

Often, people have expenses in retirement that they did not have when they were working. For example, if you buy a caravan, your petrol bill will be a lot higher. When I was a financial planner, I had a client who had not factored in the additional fuel costs it would take to tow his caravan, so his living expenses were $5,000 higher than what he had budgeted for. That meant he had to drawdown extra money from his pension account.

No matter what stage of wealth accumulation you are at in your working life, I recommend you work out what you will need in retirement, so you know what to aim for. Getting advice from a money coach or financial planner will make the process so much easier.

If you want to save yourself a lot of worry about your retirement, email me at bryan@bryanworn.com.

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