Retirement planning case study: Couple aged 47 and 48

Up until now they have focused on paying down their mortgage. But now that they are getting closer to retirement and their daughter will soon be independent, they are considering paying more attention to their super.

According to MoneySmart’s Retirement Planner calculator, if they keep on as they are now, making no changes to their strategy or adding to their investments, they are on track to retire at 60 with a combined super balance of $1,008,437 ($677,847 + $330,590).

This is estimated to produce an annual combined retirement income of $55,645 until age 90, or $61,547 until age 85.

Initial estimated annual retirement income until age 85

Source: MoneySmart Retirement Planner

This is not what they hoped for.

Given they will soon have more disposable income when the mortgage is paid off and their daughter is independent, they decide to improve their retirement outlook by salary sacrificing or making personal super contributions up to their concessional cap of $25,000.

Chris’ employer currently contributes Superannuation Guarantee payments of $17,100 per year while Lisa’s employer contributes $7,600. That means Chris could contribute an additional $7,900 per year and Lisa could contribute $17,400, earning them both a handy tax deduction in the process.

They use MoneySmart’s Super Contributions calculator to estimate this will reduce their net pay from $183,156 to $157,856 per year ($25,300 per year less), but decide that this is a sacrifice they can afford to make, particularly since it will add an additional $30,650 in contributions to their super each year.

Super Contributions Optimiser summary

Source: MoneySmart Super Contributions Optimiser

This strategy would take their estimated combined super balance to $1,240,993 and provide income of $59,573 per year to age 90, or $67,009 per year to 85.

Revised estimated annual retirement income until age 85 (after making additional contributions)

Source: MoneySmart Retirement Planner

While this is enough to provide a comfortable retirement by community standards, it’s still well short of Chris and Lisa’s expectations. Luckily, they are still relatively young so there is time to improve their retirement outlook either by saving more or retiring later.

If they delay retirement until Chris turns 65, their super balance will increase to an estimated $1,471,200 providing income of $72,084 per year until age 90, or $85,815 to 85. This closer to their goal and perhaps a more realistic plan.

Revised estimated annual retirement income until age 85 (after making additional contributions and delaying retirement until age 65)

Source: MoneySmart Retirement Planner

At some point they may also consider downsizing their large family home and putting the proceeds into their super as a concessional contribution.

Both Chris and Lisa expect to receive an inheritance from their parents at some point, but there is no way of knowing when that will be so it can’t be relied on to provide retirement income when they need it. They do, however, agree to make the most of any future wage increases or windfalls they may receive to add to their retirement savings.

Learn more about how to plan your own retirement.