How much super do you need to retire comfortably?

How much super do you need to retire comfortably?

How much super do you need to retire comfortably? | Aspect Accountants

How much super do you need to retire comfortably? Australians are beginning to question the amount of income and super they need to earn to achieve a comfortable retirement.

It has been estimated that an average of $1.6 million will be a goal target for those wanting to retire comfortably. Although this figure is commonly cited, it may be more than what is needed.

The professor of finance at Griffith Centre for Personal Finance and Superannuation; Robert Bianchi noted there is no correct or final figure when heading into retirement.

Bianchi discusses three major factors in determining the savings a person will need to retire comfortably. These are as stated below:

  1. Sources of income: superannuation, non-super savings and the age pension
  2. The individuals desired lifestyle in retirement
  3. Expected lifespan (otherwise known as “the real big unknown”)

Typically, the longevity of one’s superannuation should last around 20-22 years, with 50 percent of retirees needing their superannuation to last a lot longer.

In Bianchi’s model, he suggests that A$1.6 million in superannuation would be more than enough for individuals seeking comfortable retirement. Comparably, Bianchi denotes; A$500,000 in super would fall short. He concludes the ‘magic number’ lies somewhere in between the two figures. A recent report from the Association of Superannuation Funds of Australia (ASFA) demonstrated that most super balances fall short of even half a million dollars. It was reported that:

“In 2015-2016, the average superannuation balance for men was A$111,853 and A$68,499 for women. The balances for those nearing retirement were better, but still short. For people aged 60-64 years, the average balance was A$270,710 for men and A$157,050 for women.”
The ASFA Retirement Standard

The Association of Superannuation Fund of Australia (ASFA) found that in 2015-2016, the average Australian needed an annual income of $27 648 for a single person and $39 755 for a couple.  This was needed for a “modest” retirement lifestyle to afford the basics. The ASFA found that $43 317 for a single person and $60 977 for a couple was needed for a “comfortable” lifestyle.

A “comfortable” lifestyle is described by the ASFA as “enabling an older healthier retiree to be involved in a broad range of leisure and recreational activities. And to have a good standard of living through the purchase of things such as household goods, private health insurance, a reasonable car, good clothes, a range of electrical equipment and domestic and occasional international holiday.”

However, Bianchi argues that this standard should not be the answer. We need to readdress not only the policies, but also the ways in which we can help ensure a more comfortable retirement living.

Bianchi further discusses that a higher superannuation contribution rate would be of relevance when tackling this. Fund manager at Vanguard; Nathan Zahm also denotes that to achieve a comfortable retirement income by the standard set by the ASFA, a combined superannuation balance for a couple would need to be just over A$800,000. Zahm further illustrates:

“A couple who retired at age 66 with this super balance could be 95 per cent certain that their funds would last for the next 30 years. Whilst this figure won’t apply to everyone, it is a good guide,” he says.
The final word…

In most cases, individuals begin to tighten funds dramatically to keep atop of their retirement balance. Zahm notes that upon retirement, many individuals try to anchor whatever balance they began their retirement with and spend very carefully.

Tax, economics and budget researcher at the Grattan Institute think tank, Mr. Brendan Coates outlined

“The current superannuation system, with a 9.5 per cent superannuation guarantee contribution – where an employer contributes the equivalent of 9.5 per cent of a person’s wage to their superannuation account – and the age pension, are enough for people to have an adequate retirement income.”

Further defining, that the “adequate” retirement income will work as giving the same living standard in retirement as they had during their working age. They conclude if you’re earning $120k-$150k a year before retiring, it’s safe to say you should allow for $70k-$80k a year in retirement.