How much money do I really need to put away for retirement?

There is a lot of confusion about how much money people really need to be putting away for retirement, especially with many baby boomers approaching the age of retirement in the next few years. Here are some guidelines to help you work out how much you will need for retirement. 

How old are you?

The magic of compound interest means that any money that you place into your superannuation when you are very young will be a significant amount by the time you retire—for example, if you place $1000 into an account at 18 and let it compound at 7% until you reach retirement at 65, it will be worth $24,045.71 by the time that you retire. If you are relatively young, compulsory superannuation is a great way to force you to save these amounts (even when the budget is tight) so you can have a healthy retirement balance by the time you do retire. 

How much money do you need each year in retirement?

Some people imagine living a very simple life in retirement and will require a much lower income than they need in their working life. Other people want to spend their retirement traveling the world and enjoying expensive meals. The lifestyle that you want in retirement is worth thinking about, as you can use this to work back to a final lump sum figure that you will need to retire with, and this will then help you to derive an annual savings goal for retirement. 

How much money do you have already?

If you start with a large amount of money in your superannuation or expect to get a large amount of money in the future (such as from an inheritance, from the sale of a property or the sale of a business), it can often be a tax preferential arrangement to place some of these funds into your superannuation, and this can reduce the amount of money that you need to save annually. 

If you are uncertain about how much money you need to be saving from your income for retirement, then you should talk to a financial advisor. They can review your personal situation including your income, age, current wealth/retirement balance and needs for income in retirement. It can be very helpful to get this professional advice to help you set annual savings goals to help you achieve a final 'lump sum' for retirement.