One of the best-known lines about investing comes from Warren Buffett: “Someone is sitting in the shade today because someone planted a tree a long time ago.” Retirement planning is exactly that – planting the tree early enough that there is shade when you need it. Yet surveys consistently find that a large share of working Australians have never calculated what they will actually need.
How much is enough?
There is no single number, however often “$1 million” gets repeated in the media. What you need depends on the lifestyle you want, whether you own your home outright, how long you are likely to be retired, and what age pension support you may be entitled to. Industry benchmarks exist – the ASFA Retirement Standard publishes regularly updated budgets for a “modest” and a “comfortable” retirement, for singles and couples – and they are a far better starting point than a headline number, because they start from spending rather than a lump sum.
The honest answer is that “how much do I need?” is really three questions: what will my retirement cost each year, how much of that will come from outside my savings, and how large a balance does the remainder require? Those are worth working through properly with an adviser and an accountant rather than guessing.
Why starting early matters more than starting big
Whatever your number turns out to be, the mathematics of getting there rewards time more than heroics. As an illustration only: to build $1m by age 65, assuming a 7% annual return compounded monthly, before fees and tax, the required monthly saving is roughly:
- Starting at 25: about $380 a month
- Starting at 35: about $820 a month
- Starting at 45: about $1,920 a month
- Starting at 55: about $5,780 a month
The 25-year-old contributes less than a fifth of what the 55-year-old must, for the same outcome – the rest is compounding doing the work. (Returns are not guaranteed and will vary year to year; the point of the illustration is the shape, not the exact figures.) Starting late is still better than not starting – it simply asks more of you.
Where retirement money comes from
Superannuation is the engine for most Australians: compulsory contributions, concessionally taxed, compounding for decades. The basics worth staying on top of are unglamorous but powerful – know your balance, track down lost or duplicate accounts, check that the investment option suits your stage of life rather than whatever the default was when you joined, and understand what contribution caps allow before adding extra. The tax side of contributions is one for your accountant.
Investments outside super – shares, ETFs and other holdings in your own name – add flexibility, because they are accessible before preservation age and can keep generating income alongside super afterwards. At iInvest, there are no ongoing account-keeping fees to have an account or hold your shares on a HIN in the one place with us – something that has become increasingly uncommon – so a portfolio built for the long term is not eroded by charges simply for holding it. Australian shares carry a particular attraction in retirement: franked dividends. Our guides to how dividends work and franking credits explain the mechanics.
The age pension remains a backstop for many retirees, in full or in part, and interacts with your assets and income. The family home is the other quiet variable – owning it outright transforms the budget, and downsizing can release capital, with rules that change over time.
Balancing growth and income as retirement approaches
A common approach is to hold more growth assets (shares) early, when there is time to ride out downturns, and shift gradually toward income and defensive assets as retirement nears. But retirement itself can last 25-30 years – long enough that abandoning growth entirely carries its own risk of the money running out. The right balance is genuinely individual: it depends on your other income, your health, your family situation and your comfort with market movement. This is the single area where a conversation with an adviser earns its keep.
The mistakes that cost the most
Three patterns do the damage: starting late (see the table above), panic-selling in downturns (locking in losses that patient investors recover from), and set-and-forget superannuation – never checking fees, insurance premiums quietly eroding a small balance, or an investment option mismatched to your age. None of these requires brilliance to avoid; they require attention once or twice a year.
Want to talk your retirement plan through?
Send us an enquiry and we will take it from there – or call our Burleigh Heads office on 07 5520 8788.
The information in this article is general information only and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for your circumstances, and speak with your accountant about tax and contribution matters, before acting on it. iInvest Trading & Advisory is a Corporate Authorised Representative (CAR 431611) of Zodiac Securities Pty Ltd (AFSL 398350).
