Columnist David Koch

It's a simple question, but one not enough of us ask: how much do I need to retire? The answer depends on a range of different variables and it's actually not all that hard to work out how much you'll need in retirement - problem is many of us are too scared to ask the question for fear we might spend our retirement in penury.

How much?

The best way to work out how much money you will need in retirement is to do a budget. The budget should take into consideration your living expenses now and the fact you'll have more time on your hands and could even spend considerably more money than you do now, depending on the lifestyle you want.

Don't forget to include in the budget expenses that your work may pay for now - for example a mobile phone or a lap top. Of course you'll also be saving money when you retire on transport to work, clothes for work and other items, and these savings should also be factored in.

When you have done your budget, you need to look at average life expectancy if you are a male or female and multiply the amount you will need each year to live on by the number of years you expect to live. (It sounds ghoulish and it is, but it's a sensible approach to take if you want to take responsibility for yourself in your old age.)

So if you are currently a 65 year old female who is retiring this year and you need $40,000 a year to live on, you will need around $640,000 to retire comfortably, assuming a life expectancy of 81 years, the average life expectancy of a woman.

Another approach

An alternate approach to working out a budget for your retirement is to plan your retirement needs based on what you earn now. A good rule of thumb is to plan to receive between 60 to 70 percent of your annual income when working when you are retired.  So if you earn $60,000 a year now, you should expect to need around $39,000 a year in retirement.

Again, multiply this amount by the number of years you expect to live to arrive at an amount of money you will need in retirement. A 70 year old male on this income would need roughly $312,000 to retire on.

Don't panic if you are nearing retirement and you haven't got this sort of money. Instead, talk to a trusted financial adviser about your financial options and to work out the best financial strategy to meet your future financial needs.

There is a range of options open to everyone nearing retirement, including pensions and accessing the equity in the family home. So don't stick your head in the sand when it comes to planning for your retirement. Instead find out what your choices are and make an informed decision about your future.