How much money do you actually need to retire in Australia? Some say $300,000. Others say $750,000, or $1.5 million. The truth is that every "magic number" quietly makes assumptions about you: how much you'll spend, how you're invested, the Age Pension, and whether you're happy to spend your capital or want it to last forever.
So instead of someone else's number, here's a simple way to work out your own, and what to do if you can't reach it.
Multiply the after-tax income you want each year in retirement by 20. Want $60,000 a year? Aim for about $1.2 million. That lets you live off investment returns while keeping your capital intact. With less, you can still retire by drawing down capital, adjusting spending and using the Age Pension.
Why the experts can’t agree
Two respected organisations, the same super system, and answers more than $200,000 apart. That tells you chasing one "correct" number is the wrong approach. A couple who own their home and holiday up the coast once a year needs a very different amount from a couple who rent, fly overseas every year and want to leave something to the kids.
Start with income, not a lump sum
$1 million sounds like a lot. But if you spend $100,000 a year, it's only about 10 years of expenses. At $40,000 a year it's 25 years. So the real question is: how much after-tax income do I want each year?
Start with what you spend now and be honest about what changes. The mortgage may be gone and you're not commuting. But many retirees actually spend more in their first five years, because they finally have time to travel and do the things they put off. Budget for the retirement you want, not the cheapest version of it.
Spend your capital, or preserve it?
Draw it down: you slowly spend your savings. As your balance falls, you may qualify for more Age Pension. Finishing with less than you started isn't failure. Spending it was the plan. This is how the smaller industry figures work.
Preserve it: your portfolio funds your lifestyle without shrinking, so you don't outlive your money and can leave something behind. That needs a much bigger starting balance, and that's where the 20× rule comes in.
The 20× rule
Take the after-tax income you want each year and multiply it by 20.
Why 20? Because 1 ÷ 20 = 5%. Withdrawing $60,000 from $1.2 million is a 5% withdrawal rate. The assumption is that a well-diversified growth portfolio can return around 5% a year after inflation over the long run, so returns replace what you spend and your capital keeps its buying power.
Notice the ASFA couple figure: 20× gives about $1.57 million, more than double ASFA's $730,000. They don't contradict each other. ASFA assumes you draw down capital and lean on the Age Pension; 20× aims to fund the same income while keeping your capital intact.
As a rough guide, a diversified growth fund like the Vanguard Growth Index Fund (Australian shares, international shares and bonds) has returned around 8% a year since it launched in 2002. Take off about 3% for inflation and you get roughly 5% real. That's a long-term average, not a promise for any single year.
What each level of savings delivers
Can’t reach 20×? Two levers to pull
Lever 1: spending
Small cuts have a compounding effect, because more of your capital stays invested and keeps working. Spending discipline can matter as much as investment returns.
Lever 2: the Age Pension
At the time of the video, the maximum Age Pension was around $31,000 a year for a single person and $47,000 for a couple combined. A single homeowner with assessable assets below roughly $333,000 could generally get the full or near-full pension, with a part pension continuing up to around $733,500. Income also affects the amount, and these thresholds change twice a year, so check Services Australia for the current figures.
As your super is drawn down, you may become eligible for more support. Many retirees end up in an awkward zone: too much to get much pension, not quite enough to be fully independent. Plan your portfolio and your pension eligibility together, not separately.
The four retirement tiers
The risk that can wreck the plan: sequence of returns
Every table above assumes a smooth 5% every year. Real markets don't work like that.
Say you retire with $1.2 million and withdraw $60,000 a year, a neat 5%. Now the market falls 30% in your first year. Your portfolio drops to $840,000, but you still need $60,000, which is now 7.1% of what's left. Without changing anything, you've slipped from the 20× tier towards 15×.
This is sequence of returns risk: bad returns arriving early in retirement, when you're withdrawing instead of adding. Selling after a fall leaves less money to recover. In the US, people who retired in 1973 ran down their savings much faster than those who retired just a year later in 1974. The first five years of retirement matter far more than most people realise.
Every retiree needs a plan for when markets fall, including being willing to trim spending for a while. One approach is core and satellite: around 70–85% in diversified growth ETFs for long-term compounding, and 15–30% managed more actively, raising cash when conditions look risky and redeploying it when they improve.
Your 5-step retirement plan
- Work out your income: the after-tax amount you want each year, including new costs like health care.
- Multiply by 20 to find your capital-preservation target.
- Divide your expected savings by your yearly income to see which tier you're in.
- If you're below 20×, decide whether to cut spending, draw down capital, use the Age Pension, or a mix.
- Stress-test the first five years: what if the market falls 30% right after you retire, and could you cut back on extras if it did?
Watch the full video on YouTube →
This is general information only and doesn’t consider your objectives, financial situation or needs. Figures are illustrations based on stated assumptions, not forecasts. Age Pension rates, thresholds and industry benchmarks change regularly. Check current figures and consider personal financial and tax advice before making retirement decisions.