How much do you really need to retire?
It is a question that puzzles many, and yet the answer reminds as elusive as ever.
The latest figures from Super Consumers Australia found the typical single homeowner will need around $322,000 in superannuation at 65 for a comfortable retirement, while a homeowner couple needs a combined $432,000.
That is a small increase over last year but is still one of the lower numbers published within the super industry.
This “medium” retirement standard would allow singles to spend $1,690 per fortnight, or $44,000 per year; and couples to spend $2,460 per fortnight, or $64,000 a year.
Real Data Behind the Numbers
The Super Consumers Australia figures are based on real spending data of homeowners from the Australian Bureau of Statistics.
They show how much super would be needed to sustain your desired standard of living until the age of 90, assuming you own your home outright and receive the Age Pension.
It is the inclusion of the pension and part pension that allows for lower superannuation savings targets.
Using a “high” retirement standard, singles would need $891,000 in superannuation, which could allow them to spend $2,350 a fortnight or $61,000 a year while couples would need $1,216,000 in superannuation to spend $3,420 a fortnight or $89,000 a year.
For a “low” retirement standard, singles would need $74,000 in superannuation to spend $1,230 a fortnight or $32,000 a year while couples would need $99,000 in superannuation to spend $1,810 a fortnight or $47,000 a year.
Bigger Numbers Abound
These calculations are much lower than those produced by the Association of Superannuation Funds of Australia (ASFA).
Its “comfortable” retirement standard assumes retirees need an annual income of $53,289 as a single and $75,319 as a couple. This would require a super balance of $595,000 for singles and $690,000 for couples at age 67.
It is common to find much higher “scary” estimates for super balances required, with the nice round million dollar target often mentioned and even higher amounts that really assume that people want to live like royalty in their retirement years – or already do.
An Intensely Personal Question
The central question around an appropriate amount of retirement savings is really an intensely personal one and generalised figures are really only useful as a guide or a means of comparison.
There are just so many areas of potential difference.
One that is seldom mentioned but vitally important is the risk profile of retirement investments.
If a retiree is particularly risk averse and adopts a very conservative investment profile in retirement, it is absolutely certain that they will need a much higher balance than someone who adopts a balanced approach or even uses a growth or high growth setting.
Other than the investment risk profile, there are many reasons why even those who have superannuation balances much lower than many of the suggested totals should not despair.
Some Catch-Up Strategies
The most obvious catch-up strategies include salary sacrificing even when winding down in the workforce or working part time and potentially moving on to a transition to retirement pension at the same time to increase super contributions.
Other potential strategies include applying for the aged pension as soon as possible, downsizing your property and shifting surplus funds into super through the very generous downsizing contribution scheme, using a reverse mortgage such as the Federal Government’s Home Equity Access Scheme (HEAS), contributing privately held investments either into super or income supportive cash flows, and continuing part-time work in retirement.
The key is achieving your individual standard of living in retirement rather than reaching cookie cutter estimations or being scared witless by outlandish predictions.
One low-cost option that many people don’t consider is to approach your existing super fund for assistance.
Many super funds will give limited personal or online retirement advice and projections either free or for a low price that can be invaluable in helping to plan with more confidence for an important part of life.
