Retiring without $1 million? Don't worry, so is everyone else

Sydney Morning Herald

7 days ago

As Ross Ackland, AustralianSuper's Head of Advice and Guidance, puts it: 'A $1 million superannuation balance is often thrown around as a benchmark, but it's an arbitrary figure. The reality is, what you need in retirement depends far more on your lifestyle expectations, your spending habits and your access to other income sources.
Loading
'The smarter approach is to reverse-engineer it. Start by understanding your current cost of living, then estimate what might change in retirement – things like commuting costs might drop off, but healthcare might increase. Once you know your target annual income, you can build a strategy to generate that.'
Exactly. That's the smarter approach - reverse-engineer your retirement. But how do you actually do that?
Start by getting curious. Think about what you want your life to look like. Understand your needs and your hopes and dreams. Then, start putting the pieces together. Consider these questions:
What does a good life actually cost you now? Pause and build a budget based on how you live today, before retirement.
When you understand what you already spend to live well, you get a clearer picture of what you might need in retirement. Don't just lean on benchmarks for how much people spend in retirement, get a grip on your own reality. That builds confidence.
What's likely to change when you stop working? You'll probably spend less on commuting, takeaway lunches or work clothes, but possibly more on travel, hobbies or health costs.
Think in terms of trade-offs, not cutbacks. Unless you have to, don't shrink your budget just to hit an arbitrary target. Design a life you want to live – and can afford to.
What income will you have when you retire? Think of your retirement income in layers - different streams that kick in at different stages, depending on your age and choices:
Personal savings which is accessible before you reach retirement or pension age
A transition to retirement income stream which can be accessed from 60, while you're still working if you don't meet the condition of release.
Superannuation income or lump sum drawdowns, from 60 when you reach the condition of release, or 65 if you keep working.
The age pension which only becomes accessible from 67 onwards; and
Part-time or casual work which can be a part of your life in retirement. If you choose to keep working, there's no restriction on how long you might want to.
Loading
Explore how much you can safely draw from your super each year. Use a retirement income calculator to see how your income layers can work together. The MoneySmart Retirement Planner is a great (and free) place to start. Most super funds also offer smart tools tailored to their members.
Once you've got a sense of how much income you'll need, you can start building a strategy to hit that goal before you retire. I'm pretty sure for most people, it won't be $1 million.
And remember, planning for retirement isn't about chasing a number – it's about making your life and your money work together, on your terms. If you don't have enough yet, make a plan for how you'll close the gap. That's where the real power lies.