6 days ago
How much super you need to retire comfortably for your age
The Australian Business Network
Building a big enough nest egg to retire comfortably is a key goal for millions of Australians, and today's young adults are much better placed than their parents to achieve it.
An analysis of average super account balances, and the nest eggs required for a comfortable retirement, suggests Australians aged under 30 and earning median wages will have enough in superannuation to allow them to retire in comfort.
'Comfortable' is the key word, and its definition can vary widely, but broadly-accepted numbers come from the Association of Superannuation Funds of Australia's ASFA Retirement Standard, a benchmark study of retiree spending needs that has been produced quarterly for 21 years.
ASFA has estimated that to retire comfortably on a mix of super and a part-age pension, a new retiree needs $595,000 as a single homeowner and $690,000 for a homeowner couple combined.
This will deliver them annual incomes of $52,383 and $73,875, respectively, and cover living costs including private health insurance, a 'reasonable' car, fast telecommunications, regular leisure activities, domestic holidays annually and an international holiday every seven years.
While the July 1 rise to 12 per cent compulsory employer superannuation guarantee contributions gives young workers a full career of solid super injections, older generations have not benefited from that and many have balances that struggle to reach a comfortable level.
ASFA chief executive Mary Delahunty said for Australians aged between 60 and 64, men had an average super balance near $395,000 and women had $315,000.
'The median figures are lower, $220,000 for males and $163,000 for females,' she said.
However, the trend is improving and the fact that many retirees live with a partner helps them combine their nest eggs to deliver a decent retirement.
'Most retirees aged 65 today are in a couple household,' Ms Delahunty said.
'Based on the combined super balance and other financial assets held, just over 30 per cent of retirees are at the comfortable standard, and that's up from 25 per cent a decade ago,' she said.
'By 2050 that percentage will increase to around 50 per cent for couples.'
Super funds provide projections of members' final super balances on websites and in annual statements, and there are other online calculators that help people work out if their balance today is high enough.
For example, ASFA's Super Detective tool has estimated that if you are aged 25 today and have $26,000 in super, you are on track to retire comfortably at the pension age of 67. If you're 30, the figure jumps to $66,500, and it gets dramatically larger after that.
Today's 40-year-olds need a balance of $168,000, those aged 50 require $296,000 and someone who has just turned 60 needs $469,000, although all these calculations are based on a relatively modest wage of $65,000 a year.
JBS Jenny Financial Strategists chief executive Jenny Brown said it was 'absolutely' important to know what super balance you would need and how you were placed towards reaching it.
'It's a matter of working out what we call your financial freedom number – how much do you need to retire?' she said.
'That's working out what you are spending and what lifestyle you want when you retire.
'And what age is retirement? Is it 60, 65 or 70, or as soon as you possibly can?'
Ms Brown said people should check their super was performing as expected, and that they were not overpaying on fees.
'You have got to plan for the future,' she said.
Tribeca Financial chief executive Ryan Watson agreed people should have an idea of what their final retirement super balance will be.
'This provides people with a financial goal with which to aim and can enable them to make adjustments if they look like they may end up with insufficient funds to provide for their retirement,' he said. Tips to grow your nest egg
Mr Watson's top tips to help super savers build a big balance include:
• Review your account now by checking fees, investment performance and insurance benefits, which can significantly impact your final balance.
• Make extra contributions to super, such as salary sacrificing.
• Seek strategic financial advice.
• Take a more active interest in your superannuation.
'Knowledge is power, and will dramatically increase a final retirement superannuation balance,' he said. Super guarantee boost
Mr Watson said the super guarantee's recent increase to 12 per cent would provide a significant improvement to the final retirement balance of young Australians.
'At 12 per cent, this equates to a 33 per cent increase from where SG superannuation has traditionally been at (9 per cent). As such, it is likely that more Australians in 20 to 30 years' time will be retiring a lot more comfortably.'
ASFA recently calculated that the 12 per cent super guarantee meant a 30-year-old today earning a median wage of $75,000 until retiring at 67 should be able to accumulate $610,000 in super, more than the necessary $595,000, a figure which factors in average inflation.
Ms Delahunty said this was a major milestone and showed the strength of the super system benefiting from the right level of regular contributions and strong investment returns compounding over time.
'It's showing that it is really delivering for people in retirement and delivering savings to the public purse as a result,' she said.
'You will see a government that can make different decisions about public services as they will not be spending as much on the pension, especially when you compare it to other OECD countries.
'You can actually sit in this country today and imagine life as a retiree that is the same standard that you have in your working life. That's what we should be able to do as a prosperous nation.'
Ms Delahunty said Australians were engaging with their super more because they wanted to know how they were going to live in retirement.
Super funds can help with projections, education and tools, she said.
'The other really good education tool that people have available to them is ASIC's Moneysmart website. ASIC does a really good job of simply explaining some of the concepts.
'It's a good idea to have an understanding of how that nest egg can grow.' Read related topics: Need to know Wealth Anthony Keane Personal finance writer
Anthony Keane writes about personal finance for News Corp Australia mastheads, focusing on investment, superannuation, retirement, debt, saving and consumer advice. He has been a personal finance and business writer or editor for more than 20 years, and also received a Graduate Diploma in Financial Planning.
