The Basics
There are lots of moving parts (and the more Super the better) so let’s start with the basics to get an overall feel for the size of the task.
According to the Association of Superannuation Funds of Australia (ASFA), a single person will need about $42,000 per year to maintain a comfortable lifestyle in retirement (or about $58,000 for a couple). This should be enough to provide for leisure activities and to allow the purchase of household goods, private health insurance, a car, clothes, electronic equipment, and the occasional holiday.
If you plan to be mortgage free by retirement and want to maintain your pre-retirement lifestyle, you’ll need about two thirds of your gross working income. For the average full time earner on about $78,000 per year, this equates to about $52,000 per year.
To achieve their comfortable lifestyle, ASFA estimate a single person would need a super balance of about $430,000 at the time of retirement ($510,000 for couples). This assumes you’ll receive a part pension top-up.
So broadly speaking, you should be aiming for at least half a million dollars of investments by the time you retire – excluding your home. After that, well, the more the better (and the younger you can contemplate retirement).
So, are you on track?
This is where the ‘lots of moving parts’ bit comes in. Whether or not you’re on track will, of course, depend on your current Super balance, your age, and your earnings but also on expected investment returns and inflation and expected pension payments (which depends on your assets and income at the time).
The good news is, there are some great online calculators that will juggle all these variable for you. They will project your superannuation balance and your retirement income – including the age pension as it currently stands. Put aside half an hour and try these two for a start…
- ASIC’s Moneysmart Retirement Planner not only shows you whether you’re on track. It also has some great tools to help you think about improving the results and an action checklist.
- ASFA’s SuperGuru Retirement Calculator includes a ‘projected account balance’ view which many people find interesting.
If you’re not confident that you are on track, get a second opinion.
“Today’s Dollars”
All the figures on this page are ‘in today’s dollars’ which means they’ve been adjusted for inflation.
And it makes a big difference: save $500 per month for 35 years at 5% p.a. and you’ll end up with $570,913. Hooray! Job done! …except that in 35 years inflation will erode the purchasing power of that money and it won’t buy you the lifestyle it would today.
That’s why these figures – and the calculators we link to – must and do adjust for inflation.
What are your thoughts?
Are you confident you have enough Super? Is there anything else you’d like to know about investing or superannuation?