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How much superannuation do I need to retire?

By Janean Hicks

One million dollars is the gold standard for superannuation retirement savings in many circles. But we say $250K can see you living comfortably. Find out why.
(3-min read.)

How much superannuation do I need to retire?

In many circles, one million dollars is the gold standard for superannuation retirement savings. Guess what? You don’t need that much to retire. Instead, the ideal amount you need in superannuation depends on your retirement goals, personal circumstances, financial resources (both inside and outside super), and lifestyle choices.

Hitting your superannuation retirement number

Before you can calculate your Super retirement number, you need a clear picture of your retirement. So how do your twilight years of relaxation look? Is it taking a yearly three-week trip with friends, regular dining out, or buying a new car? Perhaps you’ve not given retirement much thought, yet.

No matter your superannuation retirement vision, the aim is to stay comfortable by never running out of money. And the only way to do that is by planning now.

The Government Age Pension

Many Australians will rely on the Government Age Pension to support their retirement plans. For example, the Government Age Pension (2019) pays approximately $24,000 a year for singles and $36,000 for couples. But if you’re a high-income earner, Millennial, or Gen X can you see yourself cutting costs and curtailing your lifestyle choices to live within the financial constraints of the Age Pension? No.


Alternate retirement fund targets
Studies by the Association of Superannuation Fund of Australia (ASFA) estimate that a single person needs around $44,764 a year to live adequately in retirement. Whereas a couple needs $62,264 per annum (assuming both singles and couples own their own home and are debt-free.)

Conversely, others believe professionals should aim for a retirement income of 70 per cent of their pre-retirement salary. For example, if Tony makes $200,000 annually, his retirement income target would be at least $140,000 per year.


For those in their 30s and 40s, the 70 per cent rule isn’t unrealistic, providing you have a strategic superannuation savings plan in place now.

Nail your superannuation retirement number

The first step in calculating your superannuation retirement number is answering questions about your future retirement. For example:

  • How many years are you likely to live in retirement?
    On average men live to 84.9 years and women 87.6 years. So, if you plan to retire at 60, you need super to cover you for at least 20-25 years in retirement. But keep in mind many people live will into their nineties.

  • Will you be living as a couple?
    Superannuation rules and financial thresholds vary between singles and couples. So it’s essential your pre-retirement planning considers the effect of these differences.

  •  Do you plan to keep working part-time?
    The golden rule of retirement is to keep working. Occasional consulting or part-time work once a fortnight will make your super funds stretch further and keep you connected socially. However, financial rules govern how much you can earn from a part-time job while in retirement. Discussing retirement thresholds with your advisor before retiring will ensure the best long-term outcomes for your money.

  •  How much do you spend a week?
    What does it cost to maintain your current lifestyle? Take particular note of expenses outside of mortgage repayments. If you had to reduce these expenses by 30 per cent, what would you cut? Plus, what costs will you need to add? Many people forget to budget for home-based aged care in their senior years. 

  • Are you likely to own your own home?
    Outright ownership of your home means you have somewhere to live rent-free, plus you’re insulating yourself from rising housing costs. And depending on your asset worth outside of super, you may be eligible for the Age Pension.

  • What other assets or income are you likely to have?
    Three pillars govern Australia’s retirement income system – the Aged Pension, compulsory employer super guarantee contributions and voluntary private savings inside and outside of superannuation. When calculating your superannuation retirement number, don’t forget to include income from assets like savings, shares or term deposits. 

  • Will you be eligible for the Age Pension?
    For many professionals, self-funded retirement is the aim. However, it is worth mentioning the Age Pension does not take into account the value of your family home. Theoretically, if you sold everything to buy a 2-million-dollar home and your remaining assets were worth less than $250,000, you could collect the Age Pension. 

  • Are you planning to help the kids financially?
    Super aims to provide you with an income in retirement, not leave an inheritance. So, the best strategy to help the kids or grandkids with school fees, home deposits or start a business, is to create a savings plan separate to your superannuation. 

The answers to these questions are just the first step. Other essential considerations need to factor into your superannuation retirement number. For example, interest rates, inflation cost rises (at least 2 per cent each year) along with increases in the cost of living (e.g. 1.2 per cent annually) and tax all determine how long your superannuation nest egg will last.

Primary superannuation aim

Irrespective of your retirement vision, the bottom line is you can’t retire until you’ve paid off your home and nailed your retirement number. So regardless of how much Super is in your account today, your primary aim should be to:

  • retire owning your own home (no mortgages), along with
  • owning your vehicle outright, and
  • having at least $250,000 in your Super account (as a couple).

If that is your worst-case Super scenario, you’ll qualify for the Age Pension (assuming you meet the criteria) and you’ll be able to live a comfortable retirement.

Worst Case Scenario

Retire, age 60. Money lasting until 85 years. Own home (no debt), $250,000 in super (return on savings 2%), less than $250,000 in assets, eligible for the Age Pension and working a part-time job (1 day per fortnight).

 

Age Pension:                         $36,000
Super pension:                           $12,500

Part-time work:                         $13,000
TOTAL annual income:                         $61,500

Self-funded Case Scenario

Retire, age 60. Money lasting until 85 years. Own home (no debt), $750,000 in super (return on savings 2%), passive income for assets, not eligible for the Age Pension and working a part-time job (1 day per fortnight).

 

Investment income:                         $26,000
Super pension:                           $52,063

Part-time work:                         $13,000
TOTAL annual income:                         $91,063

Table 1. Disclaimer
This table is an approximate guide only. These figures do not take into account your circumstances. We recommend you undertake further research or seek the help of a professional financial planner to calculate your superannuation retirement number.  

As you can see by Table 1, the more money you have in super, the better off you’ll be.

Smart retirement planning

Our independent expert advice can help you calculate your superannuation retirement number. Even if you’re financially savvy, superannuation rules and regulations change, as do individual circumstances. So hitting your Super retirement number is not always straightforward. That’s why we never take our finger off the financial planning and retirement pulse. We’re continually searching for new ways to help clients boost their superannuation savings.


To secure a comfortable retirement income, talk to us at Carbon Wealth. We’re the smart retirement planning experts.

Tags: Wealth

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