In reality, most Australians have nothing like this in super. In September 2018, the Association of Superannuation Funds of Australia (ASFA) published that the average super balances at retirement were $270,710 for men, and $157,050 for womenview disclaimer1. Far less than $1 million.
So how much do you actually need and can relatively modest balances make a meaningful contribution to an adequate retirement income?
When thinking about retirement, we don’t tend to think about our super balance. Instead, we think about a lifestyle we want in retirement and translate this into how much cash we will need per week, month or year to live this lifestyle.
In other words, the amount you will need is going to depend on your personal circumstances and goals for retirement.
A good place to start is to think about the amount of money that we typically spend and break this down into essential needs (such as food, clothing, utilities), preferences (such as holidays, travel, eating out frequently) and nice to haves (such as a boat or holiday home). Thankfully we can take out work related expenses and hopefully children’s education costs. As a rough guide, ASFA has taken into consideration these potential living expenses, excluding rental costs and calculated two retirement categories of ‘Modest’ and ‘Comfortable’. While your individual circumstances and needs may differ considerably it helps to put into perspective the $1 million figure. Tables 1 and 2 below show the ASFA guidelines.
Table 1: The amount of savings needed to support a modest or comfortable retirement for retirees aged 65 – 85.
|Category||Saving required at retirement||Annual spending in retirement|
|Comfortable lifestyle for a couple||$640,000 per couple||$60,604 per couple|
|Comfortable lifestyle for a single person||$545,000||$42,953|
|Modest lifestyle for a couple||$70,000 per couple||$39,442 per couple|
|Modest lifestyle for a couple||$70,000||$27,425|
Source: ASFA Retirement Standard – June Quarter 2018. All figures in today’s dollars using 2.75% Average Weekly Earnings as a deflator and an assumed investment earning rate of 6%p.a. They are based on the current means test for the Age Pension in effect from 1 January 2017.
Table 2 shows the differences between what couples spend each year in a modest and a comfortable retirement, as calculated by ASFA.
Table 2: What is the difference between a modest and comfortable lifestyle?
Source: ASFA Retirement Standard – Detailed Budget Breakdowns – June Quarter 2018.
So how can a couple retire with only $70,000 in super and still spend the “modest” $39,442 a year? Currently the Age Pension makes this possible and is sometimes overlooked by people when thinking about how much they need to retire. This is why the lump sums needed for a modest lifestyle can be relatively low as the Age Pension (assuming you are eligible) can be sufficient to meet many expenditure needs. Currently the full annual Age Pension is approx. $23,824 for an individual and $35,916 for a couple. As you can see, if you include the Age Pension in your calculations, the lump sums needed for a modest lifestyle become much less daunting.
For example, if each person in a couple has $100,000 in super, that could generate ~$15,000 each year for 15 yearsview disclaimer2 or so. For those who meet the eligibility requirements of the Age Pension, these additional payments could help move a couple from a modest lifestyle that is halfway towards a comfortable lifestyle according to the ASFA Retirement Standard.
While the Age Pension is one consideration to take into account, here are some other things you could think about to help you to achieve a better retirement:
So do you need $1 million in retirement? Not necessarily, it depends on your lifestyle goals and your assets outside of super. A financial adviser can help you review your expectations of retirement and build this into your retirement plan, whether retirement is years away or just around the corner.
view disclaimer1. Superannuation account balances by age and gender, ASFA, September 2018.
view disclaimer2. Calculations via the Challenger Retirement Illustrator calculator, August 2018. Average Returns are determined by calculating the average of 2000 market simulations provided by Willis Towers Watson. The simulation is based upon average market scenario returns (before fees) as follows: Asset allocation 65/35 growth defensive split. Defensive return 3.7% p.a.; Growth return 2.5% p.a. capital and 5.2% p.a. income Growth. Age Pension based on laws current at August 2018 and increase with CPI. Amounts are shown in today’s dollars. Total asset based fees are 1.3% p.a. for growth and 1.1% p.a. for defensive assets.
view disclaimer3. Calculations via the Challenger Retirement Illustrator Calculator, August 2018. Assumptions as per note 2 above for a single person.
view disclaimer4. The Russell 10/30/60 Retirement Rule. Russell Investments, July 2015.
view disclaimer5. Retirement and Retirement Intentions, Australia, July 2014 to June 2015. ABS. March 2016.
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