.... who make comebacks with varying degrees of success.

Names such as swimmers Ian Thorpe and Geoff Huegill, surfer Mark Occhilupo and Muhammad Ali come immediately to mind. The list seems endless.

 
Among other groups in the community making or planning a comeback are retirees who decide to return to the workforce. Unlike the sports stars, this group is largely unheralded.

As Smart Investing discussed early this year, the 2010-11 Retirement and Retirement Intentions, Australia report, published by the ABS, indicates 228,000 retirees among those surveyed had already returned to work or were planning to do so.

The most common reasons given for wanting to return work are financial need (41%), boredom or wanting something to do (28%), and taking advantage of an “interesting opportunity” (18%).

Undoubtedly, the percentage of those who are motivated by financial need to leave retirement underlines the importance of trying to save enough for a satisfactory standard of living in retirement.

These ABS figures reflect, in part, the impact of the GFC on the retirement savings of countless retirees – many of whom are not in a position to return to work.

The Vanguard Centre for Retirement Research in the US recently looked at the seemingly straightforward question: How much retirement savings are enough.

In an article headed Savings Rates and Replacement Ratios: Both are Important , the centre emphasises that the answer to the question can much depend on an individual’s personal circumstances and goals.

“According to one rule of thumb,” the article states, “retirees should shoot for a target replacement ratio – that is, retirement income relative to pre-retirement earnings of 70%-80%. But the number is just a guide. Some people may live comfortably on less, some may need more …”

Of course, a key consideration is what savings rate is necessary to reach a target retirement income (expressed as a percentage of pre-retirement income). The two are indelibly linked.

Jean Young, a senior analyst at the Vanguard Centre for Retirement Research, notes that the replacement income ratio is a particularly important guide for those nearing retirement.

Young adds that younger people generally find it much easier to understand that they should be saving a certain percentage of their current incomes to maintain their standard of living in retirement.
 
By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
13th August 2012