How to Retire on a Million Dollars

Last weekend’s Financial Review had a massive front page article “How to Retire on a Million Dollars: Will you make the grade?”. Naturally, I coughed out the $2.70 so that I could divulge it back at home. Although as a whole, this edition of the AFR was a worth while read, this article left a lot to be desired. Despite the opening line of “there are plenty of ways to maximise you retirement income”, Smart Money’s Zoe Fielding’s solution was simply to salary sacrifice as much and as early as possible into your super. By salary sacrificing, you are adding pre-tax money and letting the powers of compounded interest work for you til retirement. Pre-tax contributions are great because the Super tax rate is only 15%. So for a $150,000 wage earner, a $100 salary sacrifice means that $85 will go into the Super compared to $60 after tax - An immediate 25% more for investment.

That’s all good and dandy, but I was expecting something more clever than that. It’s easy to get rich slowly, and I reckon a million dollars at Retirement doesn’t cut it anymore.

If a million dollars is your target though, the AFR did do some good maths for you to figure out how much you need to salary sacrifice in order to reach the milestone at 65 years old.

Here’s a excerpt for if you’re currently 25 years old:

Of course, that $1 million in today’s dollars assuming a 2.5% annual inflation and compulsory employer contribution of 9%.

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