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Retirement

How Much Super Do I Need to Retire? Is $500,000 Enough or Too Much?

  • June 18 2018
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Retirement

How Much Super Do I Need to Retire? Is $500,000 Enough or Too Much?

By Louise Chan
June 18 2018

The Association of Superannuation Funds of Australia Limited (ASFA) releases quarterly projections of the amount retirees need to fund their post-retirement years, depending on their expected lifestyles.

How Much Super Do I Need to Retire? Is $500,000 Enough or Too Much?

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  • June 18 2018
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Current projections assume that a person will retire by age 65 and would live up to the average age of 86 years old for males and 89 years old for females.

What is a comfortable retirement?

The ASFA projections assume that retirees are in good health, have healthy lifestyles, and own their homes. ASFA also assumes that a “comfortable lifestyle” means retirees will have access to private health insurance, own a good range of electronic equipment, a reasonable car and enough money to fund expenses for household goods, clothes, and holiday travels each year.

How much super do I need to retire comfortably?

The previous magic number for a comfortable lifestyle was $1.6 million, but the June 2017 ASFA Retirement Standard state that the minimum amount for a comfortable lifestyle is at $640,000 for couples and $545,000 for singles.

These values translate to an income and annual expenditure of $60,063 for couples and $43,695 for singles. However, these values only apply to retirees who are clear of debt and own their homes upon retirement. Non-homeowners will need an additional $500,000 in their Super to pay off rent or mortgage.

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TelstraSuper’s Financial Planning Guide suggests that age 56 retirees would require $670,000 in their super to last them until age 85—a similar value to what the 2012 Challenger Retirement Income Research calculated.

What is a modest retirement?

The amount is halved for retirees who prefer a more modest lifestyle in retirement.

A modest living affords retirees decent private health insurance. However, expenses for holidays, eating out, car maintenance and house repairs are significantly decreased. ASFA speculates that retirees who opt for a modest retirement lifestyle would not have much extra cash to run their air conditioners.

How much do I need for a modest retirement?

Singles who aim for a modest retirement need between $405,000 and $500,000, depending on the interest rate of the plan their savings are invested in. Total annual expenses can run up to about $24,270. This means that, for a single person who is free of debt by age 65, $500,000 will definitely be enough to afford a private health insurance while enjoying a modest living.

Couples who aim for a modest retirement may need to save between $580,000 and $640,000 to pay for estimated annual expenditures of $34,911. They would still have enough left over for smaller luxuries.

How to increase super balance to retire comfortably

Whether you are a young professional or a few years away from retiring, you must ensure that your super savings are enough to turn your dream retirement into a reality.

Luckily, there are some approaches you can try to secure the lifestyle you’d want during retirement, particularly if you are looking for options that will help you boost your super balance.

Here are some tips to help increase your super balance and retire comfortably:

Make voluntary super contributions

Currently, your employer contributes at least 9.5 per cent of your before-tax salary into your super. However, there are certain voluntary contribution methods you can look at that can help boost your super balance.

One of these is by setting up a salary sacrifice arrangement with your employer. In this, you must agree that a certain amount from your before-tax income will be paid directly into your super. This will lower your take-home pay, but any amount you salary sacrificed will only be taxed at 15 per cent, making it a tax-effective retirement saving solution.

Other voluntary contributions you can make include:

  • Tax-deductible contributions - These are contributions you can make using your after-tax income, such as transferring funds from your bank account into your super.
  • Co-contributions from the government - These are for low to middle-income Australian employees with a total income of not more than $53,564 for the 2019-20 financial year. If you qualify, the government may make co-contributions up to $500.
  • Downsizer contributions - This voluntary super contribution type is for older Aussies aged 65 and older. Qualified Aussies can make a tax-free super contribution up to $300,000 using the proceeds from the sale of their main home or residence.

Consolidate your super

Aussies who have moved jobs may have several super accounts under their names, causing them to pay multiple sets of fees. By consolidating your super funds, you will only be required to pay one administration or membership fee, avoiding unnecessary charges caused by owning several super funds.

Claim the spouse contributions tax offset

If your spouse is a low-income earner or currently out of work, you can make a super contribution on their behalf. By doing so, you become eligible to the spouse contributions tax offset, allowing you to claim an 18 per cent tax offset up to $3,000.

This information has been sourced from the Department of Human Services and ASFA.

Learn more about average retirement savings for australian.

How Much Super Do I Need to Retire? Is $500,000 Enough or Too Much?
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About the author

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Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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