How much money will I need to be able to retire? Can I afford to retire? July is a popular time of year to finish work due to receiving unused leave payments in a new financial year. In most cases tax deducted at source will be refunded when the tax return for that year is lodged.

Whether a person can afford to retire depends on their personal circumstances. How much investment capital (savings) do they have? Are their debts paid off? Are they planning any major expenditures?

How much income do they want to live on? Will they qualify for any age pension? Will they be happy to spend their capital, or do they wish to preserve it for their family after they pass on?

Investment capital is the total of bank account balances, superannuation, and non-super investments such as shares. The amount available to generate income is crucial. Preparing a budget can give a valuable guide to the income needed.

Retirement can be divided into three stages. The first is the active stage and may involve travel and physical activity. It may require more income.

The second stage can be called the quiet years when, though healthy, the retiree is less active. It needs less income. Stage three will involve assisted living and aged care. It can require significant lump sums.

Age Pensions are available from age 67. Most retirees’ pensions are limited by the Assets Test. The Income Test is more lenient. Apart from investments, assets include home contents, motor vehicles and land, things that may generate little or no income. Only the home is exempt.

Single homeowners can have up to $301,750 and couples up to $451,500 and receive full pensions. Singles with up to $674,000 and couples with a maximum of $1,012,500 receive part pensions. Non-homeowners can have more.

Retirees with assets above the cut-off points will need to be fully self-funding. Those receiving part or full pensions plus investment income are often fairly comfortable.

Retirees wanting to preserve capital for their children can draw income at around 5 per cent of the value annually. If they are happy to run their capital down they can afford to draw more, though they should still plan for a long life.

Earning rates on investments depend on what is selected. A diversified approach with a bias towards growth should earn around 7 per cent annual average. If the retiree spends 5 per cent, capital will be retained. If they spend more, it is likely to be depleted.

Financial advisers can estimate age pensions and investment incomes to assess whether each person can satisfy their personal retirement needs and objectives.