Is $750,000 in superannuation enough to retire at 60?

Retiring at 60 with $750,000 in superannuation sounds like a pretty good position to be in.

But leaving work seven years before reaching Age Pension age means your savings will need to do more of the heavy lifting.

So, would $750,000 be enough to enjoy a comfortable retirement at 60?

Let’s look at the numbers.

How much superannuation do you need for a comfortable retirement?

According to the Association of Superannuation Funds of Australia (ASFA), a single retiree who owns their home outright needs approximately $56,166 a year to enjoy a comfortable retirement.

That covers everyday living expenses alongside things like private health insurance, leisure activities, holidays, and maintaining a reasonable standard of living.

ASFA also estimates that a single person needs around $630,000 in superannuation at age 67 to fund that lifestyle, assuming some support from the Age Pension.

But our hypothetical retiree wants to finish working at 60. That means funding an additional seven years of living expenses before reaching Age Pension age.

And those seven years could make a meaningful difference to their superannuation balance.

Could dividends cover the costs?

Let’s imagine our retiree invests their $750,000 in a relatively defensive portfolio of dividend-paying ASX shares and other income-producing investments.

This might include shares like Coles Group Ltd (ASX: COL), Telstra Group Ltd (ASX: TLS), and Wesfarmers Ltd (ASX: WES).

If the portfolio generates an average dividend yield of 4%, it would initially provide approximately $30,000 a year in passive income.

That is a reasonable starting point, but it falls short of ASFA’s comfortable retirement estimate.

To cover annual spending of $56,166, our retiree would need to find another $26,166 from their portfolio in the first year. That money would have to come from selling investments.

So, while a 4% dividend yield provides a substantial contribution, investment performance will play an important role in determining how long the retirement savings last.

What would be left at 67?

Let’s consider two scenarios.

In both cases, we will assume annual spending remains at $56,166 and the portfolio continues producing a dividend yield equivalent to 4% of its value.

Scenario 1: No capital growth

In the first scenario, the investments generate their 4% dividend yield but experience no capital appreciation.

Because annual withdrawals are more than the income being generated, the portfolio gradually becomes smaller.

After seven years, the original $750,000 would have fallen to approximately $543,000.

That is around $87,000 below ASFA’s current $630,000 benchmark for a comfortable retirement at 67.

Our retiree would still have substantial savings, but their financial position would be noticeably weaker than when they stopped working.

Scenario 2: 3% annual capital growth

Now let’s imagine the portfolio achieves 3% annual capital growth alongside its 4% dividend yield. That represents a total annual return of approximately 7%.

Under this scenario, the retirement balance would only reduce to approximately $718,000 at age 67.

That is around $88,000 above ASFA’s current benchmark.

Even after funding seven years of retirement, the portfolio would have retained most of its original value.

For me, that demonstrates just how significant investment returns can be when retiring early.

Of course, neither scenario is guaranteed. Dividends can change, markets can fall, and returns rarely arrive at a consistent rate.

It is important to remember that these calculations also exclude inflation, fees, and taxes. In particular, the cost of a comfortable retirement is likely to rise over those seven years, making the comparison with today’s $630,000 benchmark less favourable.

Foolish takeaway

For me, $750,000 would be a promising starting point for retirement at 60.

The numbers suggest that retiring seven years early could be achievable, particularly if investments continue growing alongside their dividend income.

But with potentially decades of retirement still ahead, I would want a reasonable financial buffer to account for rising living costs and periods of weaker investment returns.

The post Is $750,000 in superannuation enough to retire at 60? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.