Superannuation: Financial adviser reveals formula to work out when you can retire

How far are you away from retirement? Financial adviser reveals his perfect formula to figure out when you can stop working

  • An exercise to show when you can retire comfortably can be done in five minutes
  • Financial adviser James Wrigley revealed the formula on his TikTok channel
  • Australians are staying in the workforce longer to be able to afford retirement 

A financial adviser has revealed his formula to show exactly how far away you are from being able to retire – and it can be quickly figured out on a single piece of paper.

Finance guru James Wrigley shared the exercise on his popular TikTok channel this week explaining that ‘for those looking to trade in the 9 to 5, this can show the gap you need to fill so you’re able to retire’.

Australia’s retirement age has been steadily rising in recent years as the cost of living outpaces wage growth and low interest rates – while great for borrowers – hinder investments.

Mr Wrigley said working out the gap between your current financial position and where you need to be was simple.

‘All you need is a piece of paper and a pen and you can scratch this out in under five minutes,’ he said.

‘On a piece of paper write down your nest egg assets in the top left.

‘So that’s cash in the bank, savings accounts, term deposits, superannuation funds, and any investment properties or shares. And add up all of those.’ 

Australians are working longer and retiring later according to official figures (stock image)

Mr Wrigley then explained the top right corner was for ‘lifestyle assets’ which is generally most of the things you use daily.

‘The value of your home, a holiday house if you’ve got one, cars, boats, caravans, and motorbikes,’ he said.

Then on the bottom left is where any money that you owe goes.

‘So that’s your home loan or mortgages on other properties, a car or boat loan, the total you owe on credit cards or buy-now-pay-later services, and personal loans,’ he said.

Mr Wrigley explained that to get your ‘net nest egg balance’ or the fluid assets you currently have available for your retirement you would subtract the total debt balance from the nest egg asset balance.

‘This is the number that’s going to put you in a position to retire, not the lifestyle assets,’ he said.

‘Those are nice to have, they make our life comfortable and enjoyable but those kinds of assets don’t do anything towards allowing you to retire.’

Mr Wrigley (pictured) said his formula can be 'scratched out in five minutes'

It involves dividing a pice of paper into four sections and writing down assets and debts

Mr Wrigley’s (left) exercise involved dividing a piece of paper into four sections and listing assets and debts and then applying his formula (right)

To work out the gap between your net nest egg balance and what you actually need to retire, one further step is required. 

‘Ideally what you want to do is work out what you want to spend in retirement per year – $60,000, $100,000 whatever that number is net of tax – and multiply that by 20 and that’s what you’ll need for retirement,’ he said.

Mr Wrigley said that number of 20 would generally provide enough cash flow from investments to maintain a good income regardless of whether you retire at 50 or 70. 

‘So that’s what you need to get to and your net nest egg is where you are,’ he said.

‘If there’s a gap you can work on fixing that or, if it’s already bigger, then congratulations if you’re setup is right you can probably retire today.’

FINANCIAL ADVISER’S RETIREMENT FORMULA

Divide a piece of paper into four sections. And write down:

NEST EGG ASSETS: e.g. cash/savings, superannuation, investment properties, and shares

LIFESTYLE ASSETS: e.g. home, holiday house, cars, boat, caravan, and bikes

DEBTS: e.g. mortgages, car loan, boat loan, van loan, credit card totals, buy-now-pay-later totals, and personal loans. 

Deduct debts from nest egg assets to get a net nest egg total. 

In the spare section write down the amount you assume you’ll need per year in retirement and multiply that by 20. 

The gap between the net nest egg and this amount is what you need to retire.