The Retirement Formula - Working Out Your 'Enough'

Retirement planning can be a daunting task, especially when you're unsure of how much you'll need to retire comfortably.

One popular rule of thumb used by many retirees and financial planners is the 4% rule. The 4% rule states that you can safely withdraw 4% of your retirement portfolio each year without running out of money for at least 30 years.

However, is the 4% rule enough to retire comfortably in Australia?

In this article, we'll explore the 4% rule and evaluate whether it's sufficient for retiring comfortably in Australia. You can also take my Quiz on ‘How Much Is Enough?’ for you to retire comfortably here.


What is the 4% Rule?

The 4% rule was first introduced in the 1990s by financial advisor William Bengen. Bengen analysed historical stock and bond market returns and determined that a retiree could safely withdraw 4% of their portfolio in the first year of retirement, adjusting the withdrawal amount each year for inflation.

According to Bengen's research, a portfolio with a mix of 50% stocks and 50% bonds would survive for at least 30 years with this withdrawal rate.

The 4% rule gained popularity over the years and has become a popular retirement planning tool. However, it's important to note that the 4% rule has limitations and may not be suitable for all retirees.


The Cost of Retirement in Australia

Before we evaluate the 4% rule's sufficiency in Australia, we need to understand the average cost of retirement in the country. According to the Association of Superannuation Funds of Australia (ASFA), the average retirement cost for a comfortable retirement in Australia is $44,224 per year for a single person and $62,562 per year for a couple. This figure includes expenses such as housing, health care, food, utilities, transportation, and leisure activities.

However, it's important to note that these figures are just averages, and retirement costs can vary based on lifestyle, location, and other factors. For example, living in a major city can be more expensive than living in a rural area, and owning a home outright can significantly reduce retirement expenses.

For the majority of my clients, to achieve their ideal lifestyle in retirement, their target incomes are typically more common in the range of $80,000 - $250,000 per annum, so it’s important to be mindful of your own goals.


Limitations of the 4% Rule in Australia

The 4% rule may not be sufficient for retirees in Australia for several reasons. First, the cost of living in Australia is generally higher than in other countries. According to Numbeo, a website that collects cost of living data, the cost of living in Australia is 12.96% higher than in the United States. This means that retirees may need to withdraw more than 4% of their portfolio to cover their expenses.

Second, the current economic conditions and low-interest rates may impact the 4% rule's effectiveness. The 4% rule assumes that retirees will earn an average annual return of 7% on their portfolio. However, with interest rates still at relatively low levels, even with the recent increases, it's unlikely that retirees will earn this return on conservative investments such as bonds and cash.


Alternatives to the 4% Rule in Australia

There are several alternative retirement income strategies that retirees in Australia can consider if the 4% rule doesn't apply to their own needs and situation.. Here are a few:

  • Annuities - An annuity is a contract between an individual and an insurance company. In exchange for a lump sum payment, the insurance company guarantees a regular stream of income for a certain period or for life. Annuities can provide a steady income stream and protect retirees from market fluctuations.
  • Dividend-Paying Stocks - Dividend-paying stocks can provide a regular income stream for retirees. However, it's important to note that investing in stocks involves more risk than investing in bonds and cash. With the benefits of Franking Credits, this can be a powerful strategy.
  • Rental Property Investments - Rental property investments can provide a regular income stream and potential capital gains. However, owning and managing rental properties can be time-consuming, the rental income is often taxable, and liquidity is a clear drawback.


Evaluating Your Retirement Plan in Australia

Now that we've explored the limitations of the 4% rule in Australia and discussed alternative retirement income strategies, it's important to evaluate your retirement plan to determine if the 4% rule is sufficient for your needs. Here are a few tips:

  • Determine Your Retirement Expenses - The first step in evaluating your retirement plan is to determine your retirement expenses. Consider all of your expenses, including housing, health care, food, transportation, and leisure activities. Once you have an estimate of your expenses, you can determine how much income you'll need in retirement.
  • Assess Your Retirement Portfolio - Assess your retirement portfolio to determine if it's sufficient to meet your income needs. Consider the asset allocation, diversification, and fees of your portfolio. If you're unsure about your portfolio, consider consulting with a financial advisor.
  • Reassess Your Withdrawal Rate - If you've already retired using the 4% rule, it's important to reassess your withdrawal rate periodically. Consider factors such as inflation, market returns, and your personal circumstances.

If you determine that the 4% rule is not sufficient for your retirement needs, consider adjusting your retirement plan. Here are a few tips:

  • Increase Your Savings - If you have time before retirement, consider increasing your savings to build a larger retirement portfolio.
  • Adjust Your Withdrawal Rate - If you're already retired, consider adjusting your withdrawal rate to a lower percentage to ensure that your portfolio lasts throughout your retirement.
  • Consider Alternative Retirement Income Strategies - Consider alternative retirement income strategies such as annuities, dividend-paying stocks, or rental property investments.



In conclusion, the 4% rule can be a useful retirement planning tool, but it may not be sufficient for retirees in Australia. The cost of living in Australia is generally higher than in other countries, and the current economic conditions and low-interest rates may impact the 4% rule's effectiveness. It's important to evaluate your retirement plan to determine if the 4% rule is sufficient for your needs and to consider alternative retirement income strategies if necessary.

By taking a proactive approach to retirement planning, you can ensure that you have a comfortable and financially secure retirement in Australia. Don’t forget to check out my ‘How Much Is Enough’ quiz here to find out your magic number and the steps to take to reach it.


To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3

To learn more about how we may be able to help you, please contact us:

✆         +65 8282 5702

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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.

*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.

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