- Deb (52), is divorced and single
- She earns $60,000 per year and has just $85,000 in super after taking time out of the workforce to raise her two children who are now independent
- She is on track to own her home outright within a few years but has no other investments outside super
- She won’t be eligible for the Age Pension until she’s 67 and is resigned to working full-time until then
- Deb is worried that she won’t have enough savings to live comfortably in retirement and, at age 52, wonders if she’s left it too late to catch up
The short answer is that it is never too late to boost your super while you are still working and earning an income. Deb’s net income after tax and Medicare levy is $47,847 per year. It’s generally accepted that you need 66-80% of your pre-retirement income to continue your current standard of living. As Deb’s savings and assets are relatively low, her target income will be closer to 80%, or $38,282 in today’s dollars.
She currently receives her employer’s 9.5% Superannuation Guarantee contributions of $5,700 per year but makes no additional contributions.
According to MoneySmart’s Retirement Planner calculator, if she does nothing, she will retire with an estimated super balance of $177,445 which would give her annual income of $31,090 per year, including the Age Pension, from age 67 until age 90.
Note
You can view a video on how to use MoneySmart’s calculator here.
Please also refer to the note about assumptions for the MoneySmart Retirement Planner at the bottom of this article, and note that due to the way the tool calculates dates, the results you get may vary slightly from the figures below.
Initial estimated annual retirement income until age 90
Source: MoneySmart Retirement Planner
That’s a fair way short of her target income of $38,282 and only slightly more than the ASFA Retirement Standard’s modest income for a single person of $27,545.
There are a couple of things she can do to boost her retirement savings, although she has ruled out working beyond age 67.
Deb is confident she can afford to make a personal contribution to her super fund of $400 a month. To find out whether she is better off making a before or after-tax contribution she checks the MoneySmart Super Contributions Optimiser calculator. This reveals she will get more bang for her buck by making a pre-tax contribution, either through salary sacrifice or as a personal contribution, of $625 per month (which is equivalent to making an after-tax contribution of $400 per month after factoring in the tax deduction she will earn).
Super Contributions Optimiser summary
Source: MoneySmart Super Contributions Optimiser
By making a personal pre-tax contribution of $625 a month Deb would increase her annual income in retirement to $34,248 per year, including a part Age Pension. This is still short of her target income of $38,282 per year, but much closer than if she did nothing.
Revised estimated annual retirement income until age 90 (after making additional contributions)
Source: MoneySmart Retirement Planner
Deb also checks her current super fund to see if the fees and returns are in line with the industry average. Using the MoneySmart Retirement Planner calculator she discovers that by switching to a low-fee fund she could boost her retirement income to an estimated $35,355 per year, even closer to her target.
Revised estimated annual retirement income until age 90 (after making additional contributions, and choosing lower-fee fund)
Source: MoneySmart Retirement Planner
Deb would like to have a bit more money to spend in her early retirement years while she is still fit and healthy enough to travel and visit family and friends interstate. So she adjusts the calculator to see how much income she would have if she allowed her super to run out by age 85, close to the average lifespan for Australians, rather than 90.
That would give her an estimated annual retirement income of $38,834, just above her target. But if she lives beyond age 85, she would be totally dependent on the Age Pension.
Revised estimated annual retirement income until age 85 (after making additional contributions, and choosing lower-fee fund)
Source: MoneySmart Retirement Planner
Deb will also have more room to add to her super when she is no longer making mortgage repayments, so perhaps her super will stretch to 90 after all.
After going through this exercise Deb is much more confident that she won’t have to compromise her current standard of living in retirement. In fact, depending how much extra she can save when her mortgage is repaid, she could end up slightly better off than she is now.
Learn more about how to plan your own retirement.
Note
The MoneySmart retirement planner calculator used for these projections makes certain assumptions. For example, it assumes ‘Balanced’ annual investment returns of 4.8% before tax and fees until retirement and a more conservative 3.8% after retirement. It also makes assumptions about fees. You can change these assumptions if they don’t align with your risk profile or your super fund’s fees and long-term returns.
Important
These retirement planning case studies are presented as general information only, and are solely intended to give you ideas on aspects you may need to consider when planning your own retirement. They do not take into account all aspects of someone’s financial or other situation, and should not be construed as general or personal advice.