It’s fair to assume that the average Australian might hope to live comfortably, if not lavishly, in retirement.
The widely reported ASFA Retirement Standard suggests couples can enjoy a ‘comfortable lifestyle’ on around $70,000 a year and singles on around $49,000. It stands to reason then that a single person should be able to live more than comfortably on $60,000 while a couple would live reasonably well, if not lavishly.
If $60,000 a year sounds like your kind of retirement, the next step is to work out how much super you will need to fund it.
Crunching the numbers
The tables below show the super balance required to provide a couple or a single person with annual income of $60,000.
Using MoneySmart’s Retirement Planner we’ve calculated various scenarios, depending on how long you want your money to last and the average annual return on your super investments, net of all fees.
We also look at outcomes based on whether you will become eligible for the Age Pension at some point as your savings run down.
For simplicity, we have not counted savings and investments held outside super. If you have significant outside savings, you will need less super. We also assume you own your home.
The results are based on an individual, or both members of a couple, retiring at 67, but apply to anyone who is over Age Pension age (which increased to 67 from 1 July 2023). All figures are in today’s dollars (adjusted for inflation), assuming an average annual 2.5% rise in the cost of living and an annual 4% rise in general wages in the economy.
Transfer balance cap
Also keep in mind that there is currently a $1.7 million transfer balance cap on the amount of money you can shift into a super pension account (increasing to $1.9 million on 1 July 2023). Excess amounts will need to remain in a super accumulation account or outside super, where earnings will be taxed. The interaction of the transfer balance cap with other income and investments can be complex, so we advise you to seek professional advice if you feel that it may apply to you.
The transfer balance cap applies to individuals, which means a couple could have up to $3.4 million ($3.8 million from 1 July 2023) in individual accounts. However, if a couple has one account between them in a single name, the lower individual limit applies.
Where to go for more
We hope that the figures in the tables below will get you thinking.
Couple – Super retirement balance needed to provide annual retirement income of $60,000
Years super lasts | 2% | 3% | 4% | 5% | 6% | 7% |
---|---|---|---|---|---|---|
25 years | $260,000 | $230,000 | $220,000 | $210,000 | $190,000 | $180,000 |
30 years | $240,000 | $220,000 | $200,000 | $190,000 | $180,000 | $170,000 |
35 years | $200,000 | $190,000 | $170,000 | $160,000 | $150,000 | $140,000 |
Single – Super retirement balance needed to provide annual retirement income of $60,000
Years super lasts | 2% | 3% | 4% | 5% | 6% | 7% |
---|---|---|---|---|---|---|
25 years | $1,060,000 | $930,000 | $820,000 | $720,000 | $625,000 | $545,000 |
30 years | $1,280,000 | $1,110,000 | $965,000 | $840,000 | $725,000 | $620,000 |
35 years | $1,460,000 | $1,260,000 | $1,085,000 | $930,000 | $800,000 | $685,000 |
This is due to the impact of the Age Pension, which is assumed to be received in accordance with the scheduled rate, adjusted for any reduction due to the lower of the assets test or incomes test. In the case of couples (not separated due to illness), the full Age Pension (as at March 2023) provides $1,604 per fortnight combined, or $41,704 per year). This underpins nearly 70% of a $60,000 annual retirement income target, reducing the superannuation savings required to make up the balance.
By contrast, a single full Age Pension recipient currently receives $27,664 per year, just 46% of a $60,000 annual retirement income target. This means a significantly higher level of personal super savings is needed to produce the difference in income between the Age Pension and the desired $60,000 level of retirement income. As the tables above show, these differences are accentuated the lower the investment returns earned in retirement.
Leave a comment
You must be a SuperGuide member and logged in to add a comment or question.