“I need a million dollars to retire.”
I hear this at least once a week. Sometimes more. And every time, I ask the same question: “What do you need a million dollars for?”
The answer is almost always the same: “Because everyone says I need a million dollars.”
Here’s the thing – retirement planning isn’t about hitting some magical number that financial magazines or your mate at the pub told you about. It’s about understanding what you actually want your retirement to look like, and then working out what that costs.
The Million Dollar Myth
There’s nothing inherently special about $1 million AUD. For some people, it’s far more than they’ll ever need. For others, it won’t be nearly enough. The number itself is meaningless without context.
What matters is whether your savings can support the lifestyle you want to live. That’s it. That’s the whole game.
Start with Your Lifestyle, Not a Number
The most effective retirement planning works backwards. Instead of fixating on an arbitrary savings target, start by asking yourself: what do I actually want to do when I retire?
Do you want to travel extensively? Stay close to home and spend time with grandchildren? Take up expensive hobbies or keep things simple? Downsize your home or stay put?
These aren’t just nice-to-know details. They’re the foundation of your entire retirement plan.
The Income Reality Check
Here’s what I’ve noticed over the years: most people haven’t actually sat down and calculated what they spend now, let alone what they’ll need in retirement.
They might have a vague sense that they need “enough to be comfortable” or “about what I’m earning now,” but they haven’t done the actual maths. And without understanding your income needs, any savings target is just a guess.
They’ve got a number floating around in their head – sometimes it’s a million dollars, sometimes it’s half that, sometimes it’s more. But when I ask them to walk me through how they arrived at that number, there’s usually a long pause. Because the truth is, they haven’t actually looked at what they spend day to day. They haven’t sat down with their bank statements or added up their regular expenses. They definitely haven’t thought through which costs will drop off when they stop working and which ones might actually go up.
This is where the real work begins. Not with picking a target out of thin air, but with understanding your actual spending patterns.
Start by looking at your current spending:
- What are your essential costs (housing, food, utilities, insurance)?
- What do you spend on lifestyle and leisure?
- Which expenses will disappear in retirement (commuting, work clothes)?
- Which might increase (healthcare, travel, hobbies)?
This exercise alone often surprises people. Sometimes they realise they need less than they thought. Sometimes more. But at least they’re working with real numbers instead of assumptions. And once you know what income you actually need, you can start building a plan that makes sense for you – not for some hypothetical retiree in a magazine article.
Reverse Engineering Your Retirement
Once you know what income you’ll need, you can work backwards to figure out what level of assets will support that income. This is what we call reverse engineering your retirement plan.
For example, if you determine you need $60,000 AUD per year in retirement income, and you’ll receive $25,000 from the Age Pension, you need your savings to generate the remaining $35,000 annually.
Using a conservative withdrawal rate, you can then calculate roughly how much you need saved. But notice how we got there – we started with your actual needs, not with someone else’s magic number.
Your Number Is Personal
Your retirement number should be as unique as your fingerprint. It depends on:
- Your desired lifestyle
- Your health and life expectancy
- Whether you own your home
- Your eligibility for government benefits
- Your risk tolerance
- Your legacy goals
Two people sitting next to each other might need completely different amounts to achieve the same quality of life in retirement, depending on their circumstances.
Taking the Next Step
If you’re still working towards retirement, forget about chasing someone else’s target. Instead, invest time in understanding what you actually want your retirement to look like.
If you’re already retired or close to it, it’s worth reviewing whether your current plan aligns with your actual spending patterns and goals.
The right retirement number isn’t the one you read about in a magazine or heard at a barbecue. It’s the one that lets you live the retirement you’ve envisioned, without the constant worry of running out of money.
What does your ideal retirement actually look like? Once you can answer that question clearly, we can work out what it takes to get you there.
