by Elias Makris, Partner

What do you consider an ‘adequate’ retirement income and how do you plan to achieve that?

The following facts and statistics may influence your answer:

  • Only 1 in 15 retirees (7%) live on an annual income of $70,000 or more.

  • Almost one million people have returned to work since retiring.

  • Four in ten retirees maintain that you need the same or a higher income in retirement to live comfortably.

  • Despite the evidence that the Baby Boomer generation has more retirement resources at their disposal than previous generations, these resources may not generate an adequate retirement income for some Boomers.

  • A Senate Committee on superannuation noted that there was a strong consensus amongst superannuation industry representatives that an adequate retirement income was between 60% and 65% of pre-retirement gross income.

So how much is enough?

While statistics can provide you with guides and averages on the amount of retirement income you will need, the answer to this question can only be determined by you in consideration of your individual circumstances. By planning ahead, you can take steps to establish an income stream to match that required to meet and maintain your desired standard of living in retirement.

Case Study: Planning your Retirement Income

In brief…
Lucas ran his own sports equipment store for 15 years before deciding to retire at 55. This decision was made as a result of an unexpected offer to buy his business from a national chain. As he owned his own home outright, he had always considered that his superannuation and future retirement income would come from the sale of his business.

With the purchase offer being an immediate and unexpected decision he had to make, Lucas ended up accepting the price offered without really understanding what alternative choices he had or the issues driving his business value. He had also not assessed the level of income he required in retirement, nor had he calculated the business sale price needed to give him an income-earning asset of enough size to generate his retirement income.

As a consequence, Lucas’ income is now such that he cannot afford the comforts that he and his family had become accustomed to prior to the sale of his business and his retirement.

The value of planning…
Lucas could have avoided this outcome through careful planning when he still owned the business. Firstly, he could have determined, with the assistance of a financial adviser, the retirement income he required to maintain his desired standard of living (without being afraid to include luxuries). From this, the level of retirement assets needed to generate this income could have been determined, as well as the proportion of this that would have been dependent on the sale of the business.

Once retirement income is known, the following calculation may assist in determining the level of income-earning assets required:

Planned Personal Retirement Income ($) / Planned Investment Yield (%) = Retirement Assets ($)

And then…
Lucas could then have worked with his accountant to complete a Business Value Gap analysis to determine the value of the business and improvements required (if any), to fill any gap between the current value and the required value. The inclusion of all of these matters in an effective succession plan could have made a significant difference for Lucas and his family.

If you would like to find out more about how to determine your desired retirement income and the retirement assets required to achieve that, please contact me or your accountant at Rosenfeld Kant today: (02) 9375 1200 or gary@roskant.com.au, raul@roskant.com.au, elias@roskant.com.au

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The information (including taxation) contained within this article is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Rosenfeld Kant strongly suggest that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.