This is what the InvestAstute Strategic Planning and Investment calculator or retirement income calculator looks like. See below to download the calculator.
How long will my money last?
The InvestAstute Strategic Planning and Investment Model will enable you to get an answer to this question.
About twenty years ago one of my clients asked me: “Nick, how long will my money last me?” Nobody asked me that question before! I said “That’s a very good question, Brian. I don’t have an immediate answer for you but let me work on it and I will get back to you”.
I immediately went to work on a retirement income calculator and had an answer pretty quickly. It was a simple but effective answer to Brian’s question.
Over the years many calculators, programs and models have been developed to answer this question of “how long will my super last?”. This particular retirement income calculator is a very simple version, but it will still give you a pretty good idea of the answer to this question, in your particular circumstances.
This model or investment calculator allows you to see three scenarios simultaneously. You can compare different situations that are relevant to your circumstances. Just put your figures in to see what happens if you change one variable e.g. you can put in say, spending $60,000 a year vs. spending $70,000 a year or you can see how long the money will last if you earn 7% per annum on your investments instead of say 5%.
Before you get into running your own scenarios in our Strategic and Investment Planning Model there are a few very important points to keep in mind.
See below on How to use!
How To Use: Strategic and Investment Planning Calculator or Retirement Income Calculator
Read this before proceeding to put in your figures
- “Current Value”
a. This is the amount you currently have in all your superannuation accounts and other investments.
b. This should include investments in trusts, companies and investment property.
c. This figure should exclude the family home
d. Simply put in the dollar figure, say 1,000,000
- “Number of years for saving before retirement”
a. Let’s say you are planning to work for another 10 years, then put 10 into the model
b. If you are already retired or will not be adding anything to your retirement capital then put in 0 (zero)
- “Annual Savings”
a. This is the average amount you expect to add to your savings
b. It should include the amount you put into superannuation, less 15% for the tax on contributions
c. It should also include other savings you may make outside of superannuation
d. Pick an average figure over the years you will be saving for your retirement
- “Annual living expenses in retirement”
a. This is how much you think you will spend from your ‘retirement capital’, say $75,000 a year
b. If you will continue to work and earn income to put towards your living expenses after you start drawing down from your retirement capital then you should take this into account
Total living expenses = $85,000 a year
After tax income from part-time work = $10,000 a year
Amount to enter into the calculator = $75,000 a year
- “Annual % Increase in living expenses”
a. If your living habits are expected to remain the same, your expenses will increase over time at the rate of inflation (3%)
b. If you feel your living requirements are expected to increase then add a figure to the inflation figure (3% + 3% = 6%)
c. On the other hand if you think your living requirements will be lower in the future then put in a lower overall figure, like 0%
- “Average per annum rate of return”
a. Put in the rate of return you think you will attain on your total investments, after tax
b. Be realistic. Neither too pessimistic nor overly optimistic
c. If you want a guide, current financial modelling by a leading financial organisation suggests rates between 4% and 8% per annum. (Even if we can do better it is preferable to use slightly conservative numbers in long term projections)
d. A word about tax:
i. If all or most of your retirement is in a self-managed superannuation fund or some other form of superannuation, it would be reasonable to apply 0 for your tax rate. This is under current tax rules which may change in the future.
ii. If your investments are held in less tax advantaged structures then you may wish to reduce the expected after-tax rate of return.
Important Points and Disclaimer
- This is a very simple retirement income calculator. It cannot, and does not, take every situation or possibility into account. That is where good strategic financial planning comes into play. Every model or retirement income calculator has its limitations. The more situations the model takes into account the more complex it becomes. This model is purposely kept simple and easy to understand.
- This retirement investment calculator will give you a reasonable approximation of what could happen with your “retirement capital” over the very long term. You will see what will happen based on the figures you put into the model.
- This model provides valuable insights into important questions like what your investment objectives should be, the risk profile for your portfolio and the appropriate investment strategy for your investments.
- This model illustrates the effects of some of the most important factors in your strategic financial planning, which are:
– How much retirement capital you have to fund your retirement.
– How much you spend in retirement.
– What rate of return you achieve on your investments.
IMPORTANT: NO PARTICULAR OUTCOME IS IMPLIED OR GUARANTEED BY THIS MODEL
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Simply call on 02 9929 5125. Or email us with any questions you may have at question@InvestAstute.com.au
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