On this page
- 1. Compare results from several calculators
- 2. Change the assumptions
- 3. Check default investment returns
- 4. Add the Age Pension
- 5. Consider assets outside super
- 6. Don’t forget insurance premiums
- 7. Consider spouse information
- 8. Work out your retirement income budget
- 9. Consider your longevity risk
- 10. Trial scenarios and stress testing
Anyone who’s ever spent a few minutes popping numbers into their super fund’s online retirement calculator to find out if their retirement savings are on track knows it’s a confusing process.
Calculators ask lots of questions and produce some great charts, but they’re only as good as the information you put into them, or the assumptions used to build them.
When you use an online retirement calculator, it’s important to know how much detail you are seeking about your retirement plans. Some people just want a quick idea of how they are travelling when it comes to their retirement savings, while others want a detailed projection of their financial future.
If you have a small account balance or are in the default investment option of your super fund, and you only want a rough idea of your account balance at retirement, your fund’s online retirement calculator will probably do the trick. If you have selected a different investment option however, or you want to check a range of possible scenarios, or want a lot of detail, you may need to shop around.
To help you select a good online retirement calculator, SuperGuide has created a list of 10 tips:
1. Compare results from several calculators
Comparing different online calculators may sound obvious, but few people bother to try several retirement calculators. Every calculator is different, as super funds usually tweak the basic tool to suit their particular membership and investment performance.
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Different calculators use different underlying assumptions – particularly when it comes to investment returns – generating very different results. An effective way to get a realistic picture of how much you are likely to have in your super account at retirement, or to see how long your super savings are likely to last, is to compare the results from several calculators.
Retirement calculators (sometimes called simulators) offered by the big industry super funds and corporate super funds are often produced by the same consulting firms. If two calculators have a similar ‘look and feel’, they probably offer the same functions.
The underlying assumptions (such as default investment returns) may be different however, so check these assumptions if you’re keen to compare results from several calculators.
2. Change the assumptions
Depending on your personal circumstances, using the default assumptions in your super fund’s retirement calculator may not give you an accurate projection. Changing the pre-set figures (such as retirement age) will give you a much more personalised result.
If you want a higher level of retirement income, or plan to retire later than Age Pension age, make sure you enter this information into the calculator. Otherwise the projection will give you an inaccurate idea of how much you need to save and when your account balance is likely to run out.
Planned career breaks are also important to include, as missing out on Superannuation Guarantee (SG) contributions from your employer for several years can have a big impact on your final super account balance.
If you operate your own business as a sole trader or a partner in a partnership, it’s worth checking the assumptions to see if the calculator will work for you. Some calculators do not cater for these employment arrangements.
For more information on some of the assumptions you need to consider, see the following SuperGuide articles:
- Superannuation Guarantee rules for employers
- What is the retirement age in Australia?
- When should I retire?
- How long you can expect to live, and what it means for your super
- What is the current Age Pension age?
3. Check default investment returns
Retirement calculators generally assume a set investment return for each investment option in the super fund (such as cash, balanced or high growth) and base their projections on these investment returns.
Checking these pre-set returns and deciding whether they’re too optimistic is particularly important if you’re only a few years out from retirement. If the outlook for investment markets is poor, using an investment return based on past performance or one too high for future conditions, will result in an overly optimistic projection. You may also risk running out of money towards the end of your retirement.
For more information on default assumptions and also investment returns, see the following SuperGuide articles:
- How reliable are retirement income calculators?
- Super investing: Should you change your investment option?
- Super fund performance over 28 financial years (to June 2020)
- Super fund performance over 27 calendar years (to December 2019)
4. Add the Age Pension
A good retirement calculator should create a retirement income projection that includes any eligibility for the Age Pension. Most Australians haven’t saved enough in their super accounts to fund their retirement entirely from their super savings, so they’re likely to receive at least a small PART Age Pension – particularly in their final retirement years.
The best calculators include potential income from the Age Pension in their projections and show a graphical representation of the income mix likely to come from your super account, earnings on assets outside super and the Age Pension. The ASIC MoneySmart retirement planner gives you the option of including or excluding Age Pension entitlements.
For more information on the Age Pension, see the following SuperGuide articles:
- Am I eligible for the Australian Age Pension?
- What is the current Age Pension age?
- How do I apply for the Australian Age Pension?
5. Consider assets outside super
Earnings on any investment assets you hold outside super could be an important component in your retirement income, but not all super calculators give you the option to include these earnings.
Although younger savers may have limited assets outside super, older or wealthier super members often have non-super assets including term deposits, shares and investment properties. Taking into account investment earnings from non-super assets is important if you want a realistic picture of your likely retirement income.
Retirement income calculators usually work out the earnings on investment assets using the deeming rules for the Age Pension income test. Most calculators however do not usually allow you to include capital draw-downs from these investment assets if you sell them at some point in retirement.
6. Don’t forget insurance premiums
The insurance premiums paid from your super account can be a significant cost, so it’s worth checking the retirement calculator’s pre-set assumptions. Some assume you will pay a steady premium for the insurance cover provided by your super fund every year until retirement, while others allow you to remove this cost from their projection.
A common default setting for insurance is the cost of basic cover for TPD and income protection for a member aged 40, but this may not reflect your personal circumstances. This cost may be too expensive for younger super fund members and too cheap for older members who face higher premiums as they age.
For more information on insurance and super, see the following SuperGuide articles:
- Life insurance through super: A definitive guide
- Super funds with the lowest fees for life and TPD insurance
7. Consider spouse information
Not every retirement calculator automatically allows you to include information about your partner’s super and their planned retirement date. Many also assume both partners will retire at the same time, which often doesn’t occur if spouses are different ages.
To gain an accurate picture, make sure the calculator you use allows detailed information to be entered for both partners.
For more information on your spouse and super, see the following SuperGuide articles:
- Contribution splitting: How to boost your spouse’s super
- What are the super and Age Pension rules for same-sex couples?
8. Work out your retirement income budget
A good retirement budgeting tool can help you work out how much income you will need to live a comfortable lifestyle in retirement. Once you set a desired annual income level, the calculator uses this amount to work out how long your retirement savings will provide this level of income.
Some calculators offer tools that help you set a desired budget for different expenditure categories (such as energy and food), and then use this information to establish a desired annual income in retirement. The best ones also provide weekly or monthly comparison figures from the Association of Superannuation Funds of Australia (ASFA) that show the income required to live a pre-determined ‘comfortable’ lifestyle in retirement.
For more information on target retirement incomes, see the following SuperGuide articles:
- How much super do I need to retire?
- How much super do I need to retire on $60,000 a year?
- How much super do I need to retire on $100,000 a year?
- Is $1 million in super enough to retire on?
- Is $1.6 million in super enough to retire on?
9. Consider your longevity risk
Retirement calculators can also provide useful information on your chance of survival at different ages. For example, the projection will show your remaining retirement income at a particular age and that your average chance of still being alive then is 80%.
This information is based on the Australian Life Tables compiled by the Australian Government Actuary and shows average lifespans from your current age so you can see how likely you are to outlive your super savings.
For more information on average life expectancies, see SuperGuide article How long you can expect to live, and what it means for your super.
10. Trial scenarios and stress testing
Other interesting calculator tools allow you to trial different ‘what if’ scenarios, which means you can project what will happen to your retirement balance if you change variables like your retirement age or personal contributions.
Real financial nerds may want to try the calculators that allow you to ‘stress test’ your retirement savings in different investment scenarios. These types of simulators show how fluctuating investment markets could affect your retirement savings over time.
These free retirement income simulators have all the bells and whistles and are great for anyone interested in really exploring their retirement savings options.
The ASIC Moneysmart Retirement planner calculator also allows you to change many of these types of variables.
For more information on the pros and cons of online retirement calculators, see SuperGuide article How reliable are retirement income calculators?
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