How much do I need to comfortably manage post-work life?

• By Peter Burke

QUESTIONS THAT NEED TO BE ANSWERED

• What cash flow do you need for normal day to day living expenses now and what might that look like post work life?
  • Not negotiable living needs
  • Negotiable but still needed for ongoing lifestyle
  • “New post work” cash flow needs
  • “No longer required post work” cash flow needs
• What capital expenses (above normal cash flow needs) would you expect to need in these post work years
  • Holidays? Where? How often?
  • Major items to be replaced *(cars etc)
  • Major items to be purchased (caravans etc)?
  • Home maintenance costs
  • Health care?
  • Family support?
• What amounts do you feel you need to maybe allow for such as kids/grandkids/others inheritance and maybe aged care factors for one or both of a couple?
  • Not negotiable or possible?
  • Negotiable but your own needs for ongoing lifestyle is priority?

SOME CALCULATIONS THAT CAN HELP REVERSE ENGINEER ONCE ABOVE QUESTIONS HAVE SOME CLARITY:

NOTE   “ASFA projects that a single person needs $51,360 pa and a couple needs $72,663 pa for a comfortable retirement” –  (THE AGE – MONEY 19 June 2024)

• Let’s assume these pa income needs are Mr & Mrs Average, then many will sit above or maybe below these amounts. Ideally though, I suggest these amounts should be looked at as MINIMUMS for and forward planning
• If we base our essential day to day living needs on the above ASFA quote plus allow some capital for items as also noted above
• Capital needs can come from a combination of average capital growth plus access to initial capital (based on your preferences and expectations)
• Ideally income drawing needs are largely covered by income generated

• Let’s look at how we at BBFP choose to delineate between income generated by investments and capital growth in value of these investments
  • We consider around a 5% overall income generation is both achievable and predictable
  • Capital growth is unpredictable and will depend on your mix of growth and defensive investments. Generally this will even out over longer time periods to be positive growth IF YOU DON’T NEED TO SELL CAPITAL TO COVER LIVING EXPENSES
  • Therefore we believe it is best to generate and separate income from capital so you can choose what to use income for (living needs, reinvestments, some capital expenses, buying opportunities)

 SINGLE PERSON POST WORK LIFE  (assume minimum living needs of $51,360)

• Let’s assume you are well advised and these investments are held in a Super Pension and so will be tax free on earnings, capital gains and income drawn
• To generate $51.4k at 5% we would need capital of $1.03M
• If we allow a little extra for costs to administer and manage lets use $1.15M
• This amount should also allow, on average, access to capital growth for lump sum items like holidays, cars, home maintenance etc.
• If you expect to preserve/grow capital, then this figure is needed

 COUPLE POST WORK LIFE (assume minimum living needs of $72,663)

• Again, let’s assume you are well advised and these investments are held in a Super Pension and so will be tax free on earnings, capital gains and income drawn
• To generate $72.7k at 5% we would need capital of $1.44M
• Again, if we allow a little extra for costs to administer and manage let’s use $1.55M
• Again this amount should also allow, on average, access to capital growth for lump sum items like holidays, cars, home maintenance etc.
• If you expect to preserve/grow capital, then this figure is needed

If you are OK to draw down initial capital, then a smaller amount can be used BUT modelling will show capital erosion will be inevitable over time.

Capital erosion we suggest should not be an issue because you have worked hard over your working years to accumulate these funds to passively support your living needs in your post working life years

Use of your accumulated capital in the “window of opportunity “ years (when you still have good health and energy/enthusiasm  for an active/busy life) can still leave adequate capital to generate income  needs in the latter years of your life (when capital expenses can be much reduced) IF YOU HAVE A DECENT AMOUNT IN YOUR BUCKET AT THE START.

This blog contains information that is general in nature. It does not take into account the objectives,
financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

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PB Financial Solutions Pty Ltd ABN 67 097 381 523 – trading as Burke Britton Financial Partners & Securelife Financial Solutions is an authorised representative and credit representative of AMP Financial Planning Pty Limited, Australian Financial Services Licensee and Australian Credit Licensee.Peter Burke