How much do I need to retire?


How much do I need to retire?

There is a lot of misconception about how much you actually need to have saved to enjoy a comfortable standard of living in retirement.

I have already written “What income is needed in retirement” that explains the level of income you need, to meet a specific level of retirement lifestyle. I will link that video at the end of this one, as well as in the description below.

So now, let’s find out how much you actually need, so what is the lump sum required, for you to have a reasonable retirement.

We will also check how it compares to retire as a self-funded retiree as opposed to a part or full Age Pension supported retiree.

There is a big discrepancy between what the average balance of a super fund is, as opposed to what big super funds are advertising you should have.

Based on the data provided by the Australian Bureau of Statistics this is the table that shows it all:

Age Average balance (man) Average balance (woman) Should have
24 year of age $6,300 $6,100 $24,000
34 years of age $41,700` $31,600 $102,000
44 years of age $100,300 $69,300 $207,000
54 years of age $196,400 129,199 $345,000
64 years of age $332,700 $245,100 $523,000
74 years of age $417,900 $378,600
75 years and over $366,200 $270,300

If you check this table carefully, you can see a surprising increase of super balance for both men and women pass the age of 64.

My guess is that it is due to the following:

1. people continue working pass 65 – many decide to continue working pass the age of 65 for various reasons, but one of the most obvious is the postponed age of your Age Pension eligibility till 66.5 for people born between 1 July 1955 and 31 December 1956.

People born after 1 January 1957 the Age Pension age is 67. So the retirement age has been pushed further.

2. pre-retirement planning – many pre-retirees smartly consult with a financial planner.

You can improve your retirement benefit by organising your assets and utilising lots of very beneficial superannuation strategies, additional contributions such as downsizer contributionscatch-up contributionsconcessional contributions.

You really need to know which of those provide the best retirement benefit long-term for you. I have a whole collection of videos explaining those different contributions, so feel free to watch them.

But if you want to set your money up with peace of mind that all has been done to optimise your retirement income and your Age Pension entitlement if possible, just contact me and we can review your retirement goals.

Then at age 75 we can see an immediate drop in value of superannuation balance, which would be due to commencement of some kind of an income stream and drawing an income, but also withdrawals from super for major home upgrades, big holiday, preparation for retirement such as buying a new car or a caravan.

Let’s check now how much we should actually have in our super fund according to those big superannuation organisations.

What this table indicates is that a couple about to retire is supposed to have $523,000 per person, therefore $1,046,000 combined in a super to have a solid, successful and enjoyable retirement.

As fantastic as this picture sounds, for many retirees this is just not going to happen. And this is by no means your fault.

Why? What are the main reasons that today’s retirees are behind with their savings for retirement when comparing to that table.

1. Super contributions   the level of superannuation balance is directly based on the level of income earned during your lifetime. Therefore, the higher your ongoing earned income the higher the superannuation benefit outcome.

What I mean is, superannuation contributions as SG (super contributions) have always been a specific percentage of your gross income, therefore if your income is $100,000 and today SG rate is 10%, therefore the compulsory super contribution made by your employer is $10,000.

If your gross income however is $50,000, the SG contribution will only be $5,000. So you are already $5,000 behind.

The only way to make up this difference is if you contribution extra yourself, but again, your income is lower, therefore you do not have the same level of surplus as someone earning $100,000, so in reality it is very difficult to catch up. And off it goes the vicious cycle.

2. Self-employment –  And then we have people who have always been running their own businesses, with no employer support. The usual problem for many small businesses is irregular cashflow, and this is the fundamental problem of never contributing to super, as money is always needed for running of the business.

It is a known fact, that some of the least prepared for retirement are the self-employed.

And if at the end you are unable to sell the business, then you can really have a big problem when it is time to retire.

3. Women – unequal pay, taking time off for family – having kids or later looking after elderly parents, those are just few examples, why women on average have lower super balances when comparing with man.

4. Super has not been long enough for some although superannuation system was introduced in Australia in 1980, so some 40 years ago, for the first 12 it was a system that was supporting a retirement fund for public servants and white collar employees of large corporations.

It is from 1992, therefore 29 years ago, that the Superannuation Guarantee was introduced with the mandatory 3% or 4% (depending on a size of your employer), gradually growing over the years to 9% by 2002, then 9.5% in 20214 and finally 10% from 1st July 2021.

So now you can imagine the difference in retirement balance outcome, and the final financial situation and position, if you commence employment today and right from day 1 you receive 10% SG – employer contributions, as opposed to current retirees, who had to go through the first 30 years of SG contribution history as I just described.

This is our government’s plan to get people off Age Pension – they have smartly created a superannuation system, by which over your lifetime you have your compulsory retirement savings put aside for you.

So when you are ready to retire each person will have sufficient funds to have a comfortable lifestyle in retirement.

Personally, I believe we will always have some Age Pension backup for people in financial difficulty, but the vast majority of retirees will not have to rely on Social Security system.

OK, let’s go back to our table, where super funds are telling us that as a couple we should have over a $1M in super, and this is for a homeowner. If you do not own your home, then you should have close to 50% more to be able to survive in retirement.

Well, I think there is lots of misleading information created by many super funds, as it is in their self-interest to make you believe you have to keep on saving more and more in super, otherwise you will be destitute to a great deal of struggle in your retirement years.

So let’s play a little detective game to see if this is actually correct.

Based on my video that I’ve mentioned before: “What income is needed in retirement” 

  • a couple needs an annual income of $42,560 for a modest retirement and $62,269 for a comfortable retirement
  • a single person needs an annual income of $28,165 for a modest lifestyle and $44,146 for a comfortable lifestyle in retirement.

I have done a bit of calculations and comparison of the level of income and lifestyle between two couples with the following assumptions:

  • both have $50,000 in emergency cash account
  • both have one car $20,000 value
  • both have a content with Centrelink value of $10,000 – remember this is a social security value of your contents, not your insurance or replacement value.
  • first couple has a combined value of just over a $1M in super (as indicated by super funds we all should have)  and the second couple have what the average suggests of $500,000 between partners.

One would expect a big difference in quality of life between those two couples, so let compare:

First couple with $1M in super:

  • Not eligible for Age Pension support
  • Not eligible for Pensioner Concession Card – if you don’t know benefits, watch this video:
  • Only Commonwealth Seniors Health Card available – see this video:
  • Full income needs to be drawn from own funds
  • Basic Allocated Pension income payment at 5% – therefore total income $50,000 tax free

Second couple with $500,000 in super

  • Age Pension payment of $24,274pa combined
  • Eligible for Pensioner Concession Card with all its discounts – again watch the video:
  • Basic Allocated Pension income payments at 5% – $25,000
  • Total income $49,279

So as you can see, there is no big difference in the level of income you have, although the balance of your savings is virtually half.

And this is without any optimising of your retirement savings or improvement of your Age Pension.

If this is your case, your overall income can easily be increased by over $5,000pa, to have an overall income of $55,514 without taking any additional market risks or any major financial gimmicks. If unsure how, just contact me to discuss your personals income in retirement and how to set it all up for the best benefit for you.

Obviously even the first couple outcome is without any financial advice support. That level of income can also be maximised and part Age Pension could also be planned for.

The trick in retirement planning is knowing how to achieve the balance between:

  • the income you need for your retirement
  • Age Pension can you get and what needs to be done to maximise it
  • How long will your money last
  • How to remove the market risk, uncertainty and volatility, therefore increase the probability of the retirement outcome and making your retirement plans so much more solid and secure.

 “Retirement is a Journey not a Destination, so be well prepared for the ride” 

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement

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