My step by step process of becoming rich
Retirement plans for dummies, life expectancy, when will you die

In this installment of my series “Retirement Plans For Dummies”, I look at life expectancy. If you’re trying to work out how to retire a millionaire, time to think again. If you live in Australia, you probably need to think about how to become a multimillionaire. Being a millionaire is not enough to retire on. You need to think, when will I die?

Why is $1m not enough?

In a recent article by the Sydney Morning Herald, $1m will only provide a home-owning couple with $61,000 a year after tax (if they’re 65y.o. when they retire). At 90y.o. the superannuation would run out and the couple would receive a full age penion of $32,000. Not much, is it?

If you’re looking at your retirement options and thinking about funding your own retirement (which more and more governments around the world are pushing), then you need to think about a few key items. Earlier in this series, retirement plans for dummies, I’ve already mentioned that you need to think about your lifestyle in retirement.

Call me crazy, but $61,000 a year after tax for the rest of retirement sounds crap! For me, it would be pretty difficult for Mrs Ikonz and I to travel once a year overseas in style, even if we had paid off a home at that stage.

When will I die and why it’s important

I know it sounds morbid, but you really do need to take into account when you will die as a part of your retirement planning. Why? Because your life expectancy will determine how long your money needs to last.

Life expectancy in Australia

According to the Australia Bureau of Statistics, people born today are expected to live to the following ages:
Male – 79.9y.o.
Female – 84.3y.o.

If I’m planning to retire at 55, then I need to be able to fund my retirement for at least 24 years!! If I look after myself, it could be even longer (remember, the above figure is simply an average).

And what about Mrs Ikonz?? She’s set to live for nearly 30 years into retirement. She also leads a much healthier lifestyle than I do, so I’m sure she will smash that age barrier.

The moral of the story?

Retiring early is awesome to think about and strive for, but you really need to factor in how long you are likely to have to live on those retirement savings for.

A couple of people have told me that aiming for $10m at retirement is very bullish and unnecessary (and maybe it is a little), but if I’m going to lead a baller lifestyle with Mrs Ikonz for 25 – 30 years, then I’m going to need a lot of cash behind me.

Don’t forget, I also don’t want to eat into my retirement capital if I don’t have to, I’d really like to leave it for Ikonz Jr at some stage (when he or she eventuates).

10 Comments

  • EL @ Moneywatch101
    on 28/03/2014

    I appreciate the hustle you have to be a baller. But 10 million dollars will give you, 400 grand a year. Do you really need that much money to live and travel? I certainly do not at this point in my life. I am shooting for 50-75K annual income when I retire, because by the time I do retire inflation will be higher in 20 years. Good luck reaching 10 mill. I’ll probably stop at 1.75 million.

    • Project Ikonz
      on 31/03/2014

      You’re right, $400k per years is a huge amount of money, but i’d really like to lead a life of luxury with Mrs Ikonz.
      And if we don’t spend all of the income, it will simply go back towards the principal capital, compounding the portfolio and income even more.
      It will be great to leave something for Ikonz Jr.

  • No Nonsense Landlord
    on 28/03/2014

    10M is a solid goal. But if you have enough passive income, you should not have to touch the principal.

    At a 3% withdrawal rate, 10M will net you $300K. That’s a lot of cash! And it should be forever.

    Maybe you are used to more? If so, $10M should be easy.
    No Nonsense Landlord recently posted…My Eighth Property, my second 4-plexMy Profile

  • Michelle
    on 29/03/2014

    Oh wow! That’s a lot of money. It’s an admirable goal and one I hope you accomplish!

    For us, we are aiming to have around 50k per year for retirement. We’re a long way off, but it’s doable.
    Michelle recently posted…Weekly Roundup #23: Ladies of Personal Finance NetworkMy Profile

    • Project Ikonz
      on 31/03/2014

      $10m is a ridiculous amount of money, but in 20 years, taking Australian inflation into account, it’s only really worth $5m in today’s money.
      $50k a year in countries like the US is a very reasonable amount of money, but unfortunately the cost of living in Sydney is very very high so $50k just won’t cut it. Somewhere between $60 – 100k would, but again, I really don’t want to touch my capital to draw an income.

  • Kay
    on 30/03/2014

    Life expectancy is a very important consideration when planning for retirement. Don’t forget that even if you have enough funds to take you to your expected lifetime (say 80 years), you will have a 50% chance of running out of money since 80 is just the average. You need to have money to go beyond that, especially if you have a spouse.
    Kay recently posted…Liebster Award!My Profile

    • Project Ikonz
      on 31/03/2014

      Completely agree Kay! I read a lot about people hitting the $1m and retiring (if they have no debt), but I really question whether you could really live on that for 30 years!!

  • David
    on 31/03/2014

    Retirement is hard, but did you take into account Social Security. It was established for this kind of reason. Even still, good luck saving!
    David recently posted…Carnival of Financial Planning 03/27/14My Profile

    • Project Ikonz
      on 31/03/2014

      You’re right David, retirement is very difficult, but it’s made even harder in Australia. Social Security here is means tested, meaning that the government will test your income and assets before paying you an age pension. Unfortunately, if you’ve tried to do the right thing and save money to pay for your retirement, pretty quickly you have taken away your access to social security.

  • Project Ikonz
    on 31/03/2014

    60’s a pretty good age, enough time to save money and not too old to enjoy it!

Comments are closed.