Barefoot Investor says you need much less than $1m for a happy retirement

As long as you own your own home, Scott Pape says you can live a meaningful, purposeful, retirement with much less money than you’ve probably been led to believe.

Wow-wee!

Last week’s column – on how much you need to retire – triggered an avalanche of reader responses.

“That’s WAY TOO LOW!”

“Are they eating baked beans in retirement?”

“You need AT LEAST $1 million to do anything half decent in retirement!”

Let’s recap:

Super Consumers analysed the actual spending data of retirees, and concluded that the average home owning Aussie couple in their late 50s needs $402,000 to fund a comfortable retirement. And to be clear, that figure takes into account the rising cost of inflation, medical expenses and aged care costs.

That figure shocked a lot of readers.

‘Why was it so much less than the ‘magical million’ that always gets bandied about?’ they asked.

Well, it’s because that ‘million dollar’ retirement figure has been largely influenced by the super funds lobby ASFA (Association of Superannuation Funds of Australia), who calculate their figure for a comfortable retirement at $640,000 for a couple and $545,000 for a single.

Yet that’s not a realistic figure for the average Aussie.

In fact, according to Super Consumers, that ASFA figure is only achievable for the top 20 per cent of retirees. And that also explains why the government’s independent Productivity Commission advised policymakers to simply ignore it!

However, the media has not ignored it – it has instead entrenched it. And in doing so it’s created a much bigger problem that affects millions of retirees, both wealthy and poor: they spend the little time they have left worrying about money, and hoarding it, instead of enjoying it.

As long as you own your own home, you can live a meaningful, purposeful, retirement with much less money.

My view?

The million dollar retirement number is a myth. It’s basically like telling a thirty-five year old, “look I’ve crunched the numbers, and if by now you’re not earning $200,000 a year, well I’m sorry but you’re going to live a crap life”.

Bugger off!

As long as you own your own home, you can live a meaningful, purposeful, retirement with much less money. After all, we have the amazingly good fortune to be living in the greatest country on earth, with a strong social safety net based on the aged pension plus subsidised medical and aged care.

And the truth is that whether you’re 35 or 65, once you’ve comfortably covered the basics, having more money won’t necessarily make you any happier.

Case in point, I spoke to a retiree this week who admitted he’d spent the best years of his life working in a job he hated so that he had ‘enough’ money to retire.

Now, five years into retirement, he told me the things that really made him happy are: catching up with his daughter, watching the footy with his son, walking along the beach at low tide, and sitting on the porch in the afternoon sun. And none of them cost him a cent.

Tread Your Own Path!

Dude, I’m hexed!

Hello Scott,

Looks like I’m one of three million (presumably young) Australians pooping their pants about the recent announcement of a HECS index increase to 3.9 per cent. I’ve got a whopping HECS debt of just over $53,000 (for my two degrees which currently see me sitting in a casual position earning $26.50 per hour). In the past you’ve advised to focus on other debts or investments, rather than HECS. Does this still stand?

Lina

Inflation has increased the cost of everything, including the indexation amount on HECS.

Hi Lina

You’re right, inflation has increased the cost of everything, including the indexation amount on HECS.

In 2021 it was just 0.6 per cent, this year it’s 3.9 per cent, next year … who knows?

That being said, it’s still the best debt you’ll have: your repayments are contingent on your income and, while it is tracking inflation, it’s not attracting a commercial rate of interest.

Now I don’t have a full picture of your financial situation, but it makes sense to prioritise other (higher rate) debts over your HECS.

Finally, you need to look at your return on investment:

You spent $53,000 on your education and your (admittedly short-term) return is a casual position earning $26.50 an hour?

Now that is something worth pooping your pants over.

Should I kick my friend out?

Dear Scott,

I’m in a difficult situation with my friend. She’s been renting my large family home from me for the last three years, paying $825 a week in rent. I recently had a rental appraisal done and the estimated rent for the house is now between $1600-1800 per week! I’ve sent her the agent’s quote and asked her to make a decision within the month. My friend said the agent has overpriced my house and she wouldn’t pay much more than $820 per week. I know there is a housing crisis on at the moment and she has a family to consider. Help! What would be a fair thing to do? She’s already ‘unfriended’ me on Facebook!

Jocelyn

Hi Jocelyn

Thank-you for providing me with reason #784 that I am not on social media.

Look, it’s your money and not my place to judge what you do with it … but we’re not exactly quibbling over ten bucks here: you’re subsidising her to the tune of $50,000 per year!

So, you’ll have to decide whether you want to continue doing that.

If you don’t, I’d recommend hiring an agent to deal with this for you. Yes, it’s an added cost … but then again, so is the emotional cost of being unfriended on Facebook!

My advice?

Be classy, with your head held high. Tell the agent you want to give your current tenant the first right of refusal at the market rate. And if I were in your thongs, I’d be generous about giving her time to find alternate accommodation if she doesn’t want to pay the market rate.

Help me, help them

Hi Scott,

I’m a teacher, and I have an opportunity to put together a short finance course (10 lessons) for a Year 10 cohort at my school. I want to focus on how to set them up with really achievable, totally practical and easily applied approaches for future financial security. There’s so much I want them to understand and so little time. What do you feel are the most critical lessons our teenagers need right now for the years ahead?

Sandra

Kids learn by rolling up their sleeves and doing stuff.

Hi Sandra,

Kids don’t learn by lectures, but by rolling up their sleeves and doing stuff.

That’s why a few years ago I came up with my Barefoot Ten, which are ten things every kid should do before moving out. And since you need ten lessons, they could be useful inspiration. Here they are:

1. Open a zero-fee, high-interest saving account.

2. Buy and sell something second-hand.

3. Learn to cook at least two low-cost delicious, nutritious meals from scratch.

4. Volunteer in their local community.

5. Save their parents at least $100 on your household bills.

6. Promise to never, ever get a credit card.

7. Get a part-time job from age 15.

8. Earn at least one glowing reference from a boss.

9. Open up an ultra-low cost, high-growth super fund.

10. Set up a savings account for a home deposit (and nickname it even with a buck),

Feel free to steal these or create some of your own.

And if there are any primary school teachers reading … I have a book coming out in November that starts kids really early. I’ve just put the finishing touches on it. After I handed it to my editor, he said:

“This is the best book you’ve ever written.”

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

Originally published as Barefoot Investor says you need much less than $1m for a happy retirement