Hi @south9204, This is an interesting point of conversation, IMO...

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    Hi @south9204,

    This is an interesting point of conversation, IMO most Australians have no idea what they need in order to retire or more importantly the factors that affect that decision.

    I think the greatest factors that affect retirement are interest rates, taxes & inflation. I won't talk about tax, as the policy is out of our control & forever changing.

    Inflation - is essentially what your money (could) be worth in the future. This needs to bear in mind, that it assumes you own your own home & don't need to pay for lodging. There is no way to escape inflation & the best way to safeguard against it is to generate enough of a capital balance that you won't need to draw down on it for some time.

    Interest rates - are important because they determine the interest free rate of return. Most retirees are looking for cashflow & a low risk rate of return. The risk free rate is the highest interest rate you can generate on your savings, with the lowest risk.

    If you were to put $2M in the bank at current interest rates (around 3%) then you would earn $60Kpa risk free; if spread between a number of banks with the government guarantee.

    If interest rates are @ 5% (like they were a few years back) then that same $2M generates $100Kpa risk free.

    IMO interest rates are the largest influence over the potential required balance once moving into retirement. In the above example, $1M would have nearly generated the same amount of income, if interest rates had stayed @ 5% as the $2M example. This means that over the last 10yrs or so, the decrease in interest rates has nearly doubled the amount of capital required to retire. If interest rates were to again increase, this could serve the retiring community well.

    Obviously it's important to generate as large a retirement balance as possible, but if interest rates are low it can cause retirees to take a greater than preferred level of risk to get those returns up & cashflow in, so their overall capital balance doesn't reduce.

    I hope this helps
 
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