The fixation on accumulating a certain amount of wealth before you can reach that pinnacle goal of ‘being able to afford to retire’ causes anxiety for many pre-retirees.

According to the latest research from retirement funding consulting company Milliman, this is understandably so.

The research states that running out of retirement savings is a key concern for many people. Largely because a 60-year-old man is now expected to live for a further 26.4 years and a 60-year-old woman an additional 29.1 years, according to the Government’s 2015 Intergenerational Report.

In my years of assisting clients to achieve their retirement dreams, not once has this resulted in them submitting a retirement letter just because they have reached a certain amount of wealth.

The problem with this ‘targeted amount of wealth’ approach is that the next day it will unquestionably be a different amount. What do you do then? Go back to work?

In truth, there are three factors to consider when planning the financial aspects of your retirement – annual income, retirement age, and accumulated wealth – and they’re all equally important, which is why I refer to them as the ‘retirement triangle’.

Before you get the calculator out, here are some things to consider when it comes to thinking about how much accumulated wealth you actually need before retirement, and how the other three sides of the triangle are also worth considering.

Mixed messages

It is easy to understand why the everyday worker is confused with headlines like the Financial Review’s: ‘Why you need to save $1 million each in super for your retirement’.

“$1 million sounds like a lot, but it is not necessarily all that much,” David Knox, senior partner at Mercer Consulting said in the article.

John Piggott, director of the Australian Institute for Population Ageing Research at the University of New South Wales, agrees.

“$1 million will not do all that much for you. It will give you a very low [salary] replacement rate,” he says.

In an article from IPAC, ‘What does the average retirement cost?’, they also provide advice about the golden number.

“You simply multiply the annual income you would like in retirement by 17 if you want to exit the workforce at age 55, multiply it by 15 if you want to retire at age 60, and multiply it by 13 if your proposed retirement is at age 65,” they say.

“Let’s say you decided you would need $50,000 a year in retirement to give you your preferred lifestyle. Using the formula above, you would need accumulated funds worth approximately $850,000 to retire in style at age 55; $750,000 at age 60; and $650,000 at age 65.”

ASFA Retirement Standard

The Association of Superannuation Funds of Australia (ASFA) produces the industry respected ‘ASFA Retirement Standard’.

The analysis is based on two standards of retirement income: modest and comfortable.

This is the industry benchmark on this topic and can be a useful guide for those looking to see how they compare with other Australians planning to retire.

Required superannuation balances

According to ASFA, the lump sums needed for a modest lifestyle are relatively low due to the fact that the base rate of the Age Pension (plus various pension supplements) is sufficient to meet much of the expenditure required.

The fact that the same savings are required for both couples and singles reflects the impact of receiving the Age Pension.The lump sums required for a comfortable retirement assume that all capital will be spent, and income will be supplemented by receiving a part Age Pension.

Personalised approach

At Advice SA, rather than using an assortment of ‘rule of thumb’ approaches, we work with clients to determine their own individual goals, most importantly; what annual income would support all their retirement dreams.

Depending on a client’s circumstances, your Advice SA financial adviser will review all external possibilities to assist with meeting your income requirements – tax savings on your income and investments, Centrelink Age Pension entitlement or the benefits associated with a concession card.

Once these benefits have been incorporated, we then look at how much annual income you are attempting to draw from your money and assess if it can be supported for your statistical life expectancy.

The moral of the story is, try not to get distracted by what everyone else is saying, seek personal advice to make decisions based on your own circumstances.

Ultimately, if you want a meaningful answer to the question of “how much”, ignore the noise and consider your number in relation to the three factors of retirement planning: income, retirement age and accumulated wealth.

At Advice SA we provide goal-based advice through discovery meetings that allow you to uncover your ‘blue sky’ dreams. Call us to find out what’s possible for you.

Mark Bastiaans is an Authorised Representative #296627 of Guideway Financial Services Pty Ltd ABN 46 156 498 538 AFSL 420367.

The information provided above contains general advice that does not take into account your financial situation, specific needs or objectives and is not intended to be personal financial advice and should not be relied upon without written advice from Guideway Financial Services Pty Ltd.