How much super do I need to retire?

No doubt you have heard people say you need a million dollars (or some other nice round figure) in superannuation before you can afford to retire. Often they are the same people trying to sell you investment products or advice. Don’t pay attention to them, because there is no magic number.

The amount of super YOU need to retire will depend on your personal circumstances, financial resources both inside and outside super, and your lifestyle. So before you set an arbitrary super target, block out the fearmongers and think about the big picture.

The tables at the end of this article show the super balance and net returns required to provide various annual incomes for singles and couples over 25, 30 and 35 years.

Setting your retirement balance target

To work out how much super you need, here’s a checklist of factors you should consider:

• Years in retirement
• Whether you are in a couple
• Whether you plan to keep working
• How much you spend
• Whether you own your home
• What other assets or income you have
• Whether you are eligible for the Age Pension
• How much your super grows in retirement
• Whether you want to help the kids.

Years in retirement

With any luck you will get to choose the day you retire, but none of us has any way of knowing how long we will live. This is the known unknown of retirement planning and is the reason many retirees are reluctant to spend as much as they could possibly afford.

Today’s retirees can expect to live to an average age of 84.9 years for men and 87.6 for women, or roughly 20 and 22 years respectively. And that’s just an average; half will live longer, many into their 90s.

If you hope to retire at 60, say, keep in mind that your retirement savings may need to stretch 30 years or more. Once you work through this checklist and have a clearer idea of the financial resources at your disposal, you may decide to work a little longer. Or you could find you have more than enough to retire as planned.

Learn more about life expectancy.

Whether you are in a couple

It’s often said that two can live cheaper than one. That’s because couples can share the costs of everything from rent, home maintenance and utilities, to the running costs of a car and the replacement of white goods and home furnishings. Even travel is cheaper for couples because they can share a room or a cabin, whereas singles pay a supplement.

Couples may also be able to do without the cost of home help or garden maintenance for longer than a single person living alone.

Whether you plan to keep working

By working part time or doing occasional consulting in the early years of retirement, you may be able to afford a better lifestyle or make your super last a few years longer. Not to mention the non-financial benefits such as social interaction and intellectual stimulation that can come with keeping a foot in the workforce.

Learn more about working in retirement.

How much you spend

To maintain your current lifestyle, it is suggested by the OECD and others that you need around 70% of your pre-retirement income. (This is based on mortgage costs amounting to around 30% of income and your home being paid off before you retire). If you don’t own your home or you hope to do significantly more overseas travel or take up expensive hobbies, you may need more. Frugal homebodies may need less.

Lower income earners, especially those who rent, may need significantly more than 70% replacement income because they spend more of their pre-retirement income on necessities than wealthier individuals.

As you get close to retirement, work out how much you expect to spend and don’t forget to include aged care in your reckoning. The ASFA Retirement Standard provides itemised budget breakdowns for modest and comfortable lifestyles that may be a helpful starting point when planning your own retirement budget.

Learn more about the cost of living in retirement.

Whether you own your home

Owning your home outright by the time you retire not only provides you with somewhere to live rent-free, but also insulates you from rising housing costs.

The Grattan Institute’s 2018 report Money in retirement estimates retired homeowners spend 5% of their income on housing, on average, compared with 30% for retired renters. The report found the benefit of home ownership is worth $23,000 a year to the average householder aged 65 or over. That’s roughly as much again as the maximum Age Pension.

Keep this in mind when reviewing the ASFA Retirement Standard budgets for modest and comfortable lifestyles in the tables below, which assume retirees own their home.

Many of today’s retirees have a home that is worth more than their retirement super balance. This will change for future generations who have had the benefit of compulsory employer super for their entire working life (although on current trends fewer of them will own a home).

If you find you are asset rich and income poor in retirement, you may be able to tap into your home equity by downsizing to a smaller property. You may also be able to contribute up to $300,000 into your super account ($600,000 for couples). Learn more about downsizer contributions.

Alternatively, you could take advantage of the Government’s recently expanded Pension Loans Scheme, which allows all retirees to borrow against the value of their home. Learn more about the Pension Loans Scheme (PLS).

Where you live

Whether you own your home or rent has a big impact on retirement spending, but so does the location of your home irrespective of whether you own or rent. We all intuitively suspect country living is cheaper than city living and, it turns out, we’re right.  

Research by actuarial management consultancy Milliman, based on real-life spending of 300,000 Australian retirees, found big differences between city and country living. The spending gap is 7.3% for retirees aged 65–69, growing to almost 11% for those in their early 80s. There are also wide variations in retiree spending patterns between states. Canberrans are the biggest spenders, forking out 15.9% more than the national average, while retirees in rural South Australia spend the least, at 10.5% below the national average.

So if you are considering a sea or tree change in retirement or selling a rural property to move to the Big Smoke, you need to factor in more than the cost of real estate or rent. The cost of living, and even what is deemed a necessity, can vary widely from region to region and even from suburb to suburb.

Learn more about the impact of location on retirement spending.

What other assets or income you have

Australia’s retirement income system is based on three pillars – the Age Pension, compulsory employer super guarantee contributions and voluntary private savings inside and outside super. Make that four pillars if you include home ownership.

It’s savings outside super that tend to be overlooked in discussions about the size and adequacy of your super nest egg. Assets held outside super might include investments in property, shares or term deposits, business assets and trusts.

Also think about possible sources of income from activities such as renting out your spare room or granny flat.

Learn more about saving for retirement outside super.

Whether you are eligible for the Age Pension

Most Australian retirees receive a full or part Age Pension, so check with Centrelink to find out if you are likely to be eligible and how much you might receive. Also check SuperGuide article on Age Pension rates.

For example, the maximum Age Pension (as at September 2019) is $24,268 a year for singles and $36,582 for couples combined. To qualify for the maximum amount, single homeowners can have assets of up to $263,250 while non-homeowners can have up to $473,750. Homeowner couples can have assets of up to $394,500 (non-homeowners $605,500). Singles can have income of up to $174 a fortnight while couples can earn $308 a fortnight combined.

Learn more about how the Age Pension works.

How much your super grows in retirement

The amount you have in super at retirement is, happily, not the end of the story.

Once you retire and start drawing on your savings, the value of the investments in your super pension account should continue to grow. The higher the return you earn on your investments (after fees and other costs), the longer your savings will last.

Against this, you need to remember that higher returns come with higher risk. So the return you seek should take into account your tolerance for risk and the value you place on peace of mind.

Retirees are generally advised to reduce risk in retirement by dialling down their exposure to growth assets (shares and property) and increasing exposure to defensive assets (cash and fixed interest). The default setting for most pension funds is 41–60% growth assets. You may opt for a different asset mix, but it’s worth remembering that some exposure to quality growth assets will help guard against the risk that your money will run out before you do.

There is no way of accurately predicting future returns from financial markets, so you will need to set a realistic estimate based on historic performance over 20 years or more. Over the past ten years (a period of above average market returns) super pension funds with all growth assets returned 10.2% a year on average, net of fees. Balanced pension funds (41–60% growth) returned 8% while conservative funds (21–40%) returned 6.7%.

ASIC’s MoneySmart Retirement planner calculator assumes more conservative estimates based on actuarial advice. It sets pension fund returns at 5.3% a year before fees for high growth investments, 4.8% for balanced and 3.8% for conservative investments. However, the calculator allows you to adjust these assumptions if you think you can do better.

We have used the retirement planner calculator to prepare the tables below, which show the impact of returns on the retirement balance you need to produce various incomes.

Take the example of a single person who wants annual income of $61,786 (ASFA’s current figures for a “comfortable lifestyle”) for 25 years, and does not expect to receive any Age Pension. They would need a super retirement balance of over $1.9 million if their savings earn an average net return of 2% a year, but a balance of just over $1 million if they earn a 7% return.

Learn more about investing in retirement in the following SuperGuide articles:

• How the 10/30/60 Rule can help achieve your retirement plans
• How to choose an investment option for your pension

Whether you want to help the kids

Super is designed to provide income in retirement, not to leave as an inheritance. Even so, it’s common for parents to want to help their adult kids and grandkids with money for a home deposit, school fees or to start a business.

It’s also common for retirees to hold onto the family home so it can be handed down as an inheritance, which limits their ability to downsize, borrow against their home equity or fund aged care down the track.

If you want to earmark funds to give to the family, or to charity, make allowances for this when doing your sums. You don’t want to short change your retirement years.

Learn more about estate planning and super.

The impact of time and returns

The tables below show the super balance needed to provide different levels of income. We’ve adjusted the balance for the number of years you want your money to last and your estimated investment returns in retirement.

The balance estimates also take into account income from a full or part Age Pension once your balance reduces below a certain level.

Beginning with couples, we calculate how much you will need to provide joint annual income of $40,560 (ASFA ‘modest lifestyle’), $50,000, $62,269 (ASFA ‘comfortable lifestyle’), $80,000, $100,000, $120,000, $150,000 and $200,000.

Then we look at how much a single person needs to provide annual income of $28,165 (ASFA ‘modest lifestyle’), $44,146 (ASFA ‘comfortable lifestyle’), $50,000 $60,000, $80,000 and $100,000.

Also keep in mind there is a cap of $1.6 million on the amount you can transfer into a super pension account when you retire. Amounts above $1.6 million may be left in a super accumulation account but will be taxed differently. Learn more about the transfer balance cap.

How much super does a couple need to retire?

Couple – $40,560 per year (ASFA ‘modest lifestyle’)

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$120,000	$100,000	$90,000	$80,000	$70,000	$60,000
	No	$1,230,000	$1,090,000	$960,000	$860,000	$770,000	$690,000
30 Years	Yes	$140,000	$120,000	$110,000	$90,000	$80,000	$70,000
	No	$1,490,000	$1,310,000	$1,140,000	$990,000	$870,000	$770,000
35 Years	Yes	$160,000	$140,000	$120,000	$110,000	$90,000	$80,000
	No	$1,890,000	$1,520,000	$1,320,000	$1,130,000	$970,000	$830,000

Couple – $50,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$420,000	$370,000	$330,000	$290,000	$260,000	$240,000
	No	$1,530,000	$1,360,000	$1,200,000	$1,070,000	$960,000	$860,000
30 Years	Yes	$570,000	$460,000	$390,000	$330,000	$290,000	$260,000
	No	$2,030,000	$1,640,000	$1,420,000	$1,230,000	$1,080,000	$950,000
35 Years	Yes	$920,000	$620,000	$460,000	$380,000	$330,000	$280,000
	No	$2,720,000	$2,280,000	$1,690,000	$1,410,000	$1,200,000	$1,030,000

Couple – $62,269 per year (ASFA ‘comfortable lifestyle’)

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$1,130,000	$960,000	$800,000	$650,000	$550,000	$420,000
	No	$1,930,000	$1,710,000	$1,490,000	$1,320,000	$1,150,000	$1,060,000
30 Years	Yes	$1,460,000	$1,320,000	$1,110,000	$920,000	$730,000	$580,000
	No	$2,730,000	$2,350,000	$1,900,000	$1,520,000	$1,330,000	$1,180,000
35 Years	Yes	$2,180,000	$1,670,000	$1,410,000	$1,190,000	$980,000	$750,000
	No	$3,600,000	$3,200,000	$2,720,000	$2,020,000	$1,480,000	$1,270,000

Couple – $80,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$2,080,000	$1,790,000	$1,560,000	$1,390,000	$1,240,000	$1,100,000
	No	$2,770,000	$2,450,000	$2,090,000	$1,740,000	$1,530,000	$1,380,000
30 Years	Yes	$2,930,000	$2,530,000	$2,090,000	$1,700,000	$1,480,000	$1,310,000
	No	$3,730,000	$3,350,000	$2,900,000	$2,360,000	$1,790,000	$1,520,000
35 Years	Yes	$4,000,000	$3,570,000	$3,030,000	$2,340,000	$1,730,000	$1,480,000
	No	$4,880,000	$4,480,000	$3,980,000	$3,350,000	$2,560,000	$1,660,000

Couple – $100,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$3,080,000	$2,750,000	$2,400,000	$2,050,000	$1,760,000	$1,570,000
	No	$3,590,000	$3,260,000	$2,870,000	$2,460,000	$2,050,000	$1,740,000
30 Years	Yes	$4,230,000	$3,850,000	$3,360,000	$2,830,000	$2,280,000	$1,840,000
	No	$4,800,000	$4,420,000	$3,960,000	$3,400,000	$2,750,000	$2,100,000
35 Years	Yes	$5,450,000	$5,130,000	$4,680,000	$4,020,000	$3,200,000	$2,320,000
	No	$5,890,000	$5,520,000	$5,180,000	$4,710,000	$3,910,000	$2,920,000

Couple – $120,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$4,010,000	$3,690,000	$3,290,000	$2,880,000	$2,460,000	$2,090,000
	No	$4,410,000	$4,070,000	$3,680,000	$3,230,000	$2,750,000	$2,300,000
30 Years	Yes	$5,320,000	$5,030,000	$4,570,000	$4,010,000	$3,360,000	$2,690,000
	No	$5,640,000	$5,310,000	$5,020,000	$4,460,000	$3,780,000	$3,010,000
35 Years	Yes	$6,510,000	$6,050,000	$5,620,000	$5,240,000	$4,730,000	$3,800,000
	No	$6,940,000	$6,340,000	$5,890,000	$5,470,000	$5,100,000	$4,260,000

Couple – $150,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$5,260,000	$5,000,000	$4,600,000	$4,150,000	$3,650,000	$3,130,000
	No	$5,480,000	$5,190,000	$4,890,000	$4,420,000	$3,900,000	$3,340,000
30 Years	Yes	$6,590,000	$6,120,000	$5,700,000	$5,330,000	$5,020,000	$4,240,000
	No	$6,910,000	$1,330,000	$5,880,000	$5,480,000	$5,140,000	$4,530,000
35 Years	Yes	$8,700,000	$7,900,000	$6,890,000	$6,180,000	$5,690,000	$5,270,000
	No	$9,070,000	$8,270,000	$7,270,000	$6,350,000	$5,830,000	$5,380,000

Couple – $200,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$6,970,000	$6,410,000	$6,000,000	$5,630,000	$5,310,000	$5,030,000
	No	$7,160,000	$6,540,000	$6,100,000	$5,720,000	$5,380,000	$5,100,000
30 Years	Yes	$9,370,000	$8,320,000	$7,700,000	$6,600,000	$6,080,000	$5,650,000
	No	$9,590,000	$8,840,000	$7,920,000	$6,800,000	$6,160,000	$5,710,000
35 Years	Yes	Over $10m	Over $10m	Over $10m	$9,160,000	$7,570,000	$6,310,000
	No	Over $10m	Over $10m	Over $10m	$9,410,000	$7,810,000	$6,370,000

How much super does a single person need to retire?

Single – $28,165 per year (ASFA ‘modest lifestyle’)

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$120,000	$100,000	$90,000	$80,000	$70,000	$70,000
	No	$860,000	$760,000	$670,000	$600,000	$540,000	$480,000
30 Years	Yes	$140,000	$120,000	$110,000	$90,000	$80,000	$80,000
	No	$1,030,000	$910,000	$790,000	$690,000	$600,000	$540,000
35 Years	Yes	$160,000	$140,000	$120,000	$110,000	$90,000	$80,000
	No	$1,210,000	$1,060,000	$920,000	$790,000	$680,000	$580,000

Single – $44,146 per year (ASFA ‘comfortable lifestyle’)

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$920,000	$800,000	$690,000	$590,000	$490,000	$410,000
	No	$1,340,000	$1,190,000	$1,060,000	$940,000	$840,000	$760,000
30 Years	Yes	$1,180,000	$1,040,000	$900,000	$770,000	$660,000	$550,000
	No	$1,630,000	$1,420,000	$1,240,000	$1,080,000	$940,000	$830,000
35 Years	Yes	$1,420,000	$1,230,000	$1,090,000	$940,000	$810,000	$690,000
	No	$2,210,000	$1,730,000	$4,430,000	$1,240,000	$1,050,000	$900,000

Single – $50,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$1,200,000	$1,060,000	$940,000	$830,000	$740,000	$650,000
	No	$1,530,000	$1,360,000	$1,200,000	$1,070,000	$960,000	$860,000
30 Years	Yes	$1,490,000	$1,320,000	$1,160,000	$1,020,000	$900,000	$790,000
	No	$2,030,000	$1,640,000	$1,420,000	$1,230,000	$1,080,000	$950,000
35 Years	Yes	$1,980,000	$1,550,000	$1,370,000	$1,190,000	$1,030,000	$900,000
	No	$2,720,000	$2,290,000	$1,690,000	$1,410,000	$1,200,000	$1,030,000

Single – $60,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$1,590,000	$1,420,000	$1,260,000	$1,130,000	$1,010,000	$910,000
	No	$1,940,000	$1,640,000	$1,440,000	$1,280,000	$1,150,000	$1,030,000
30 Years	Yes	$2,190,000	$1,810,000	$1,520,000	$1,330,000	$1,180,000	$1,050,000
	No	$2,630,000	$2,260,000	$1,800,000	$1,480,000	$1,290,000	$1,140,000
35 Years	Yes	$2,990,000	$2,550,000	$2,010,000	$1,530,000	$1,320,000	$1,160,000
	No	$3,500,000	$3,070,000	$2,550,000	$1,870,000	$1,440,000	$1,230,000

Single – $80,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$2,530,000	$2,220,000	$1,890,000	$1,620,000	$1,450,000	$1,310,000
	No	$2,780,000	$2,460,000	$2,100,000	$1,740,000	$1,530,000	$1,380,000
30 Years	Yes	$3,450,000	$3,080,000	$2,620,000	$2,130,000	$1,670,000	$1,470,000
	No	$3,730,000	$3,360,000	$2,900,000	$2,360,000	$1,790,000	$1,520,000
35 Years	Yes	$4,580,000	$4,160,000	$3,650,000	$3,010,000	$2,240,000	$1,600,000
	No	$4,880,000	$4,480,000	$3,980,000	$3,350,000	$2,560,000	$1,660,000

Single – $100,000 per year

How long super to last?	Eligible for Age Pension?	Net returns (per year)
		2%	3%	4%	5%	6%	7%
25 Years	Yes	$3,410,000	$3,090,000	$2,720,000	$2,320,000	$1,950,000	$1,680,000
	No	$3,590,000	$3,260,000	$2,890,000	$2,470,000	$2,050,000	$1,740,000
30 Years	Yes	$4,600,000	$4,230,000	$3,770,000	$3,240,000	$2,610,000	$2,020,000
	No	$4,800,000	$4,420,000	$3,960,000	$3,410,000	$2,760,000	$2,100,000
35 Years	Yes	Over $5m	Over $5m	Over $5m	$4,460,000	$3,690,000	$2,700,000
	No	Over $5m	Over $5m	Over $5m	$4,710,000	$3,910,000	$2,920,000

Assumptions

• You own your own home and have personal assets of $25,000 or less
• These calculations do not allow any investment assets outside super. Note that the amount of investment assets you have can greatly affect the amount of Age Pension you are eligible for
• Inflation costs are a 2% rise per year in cost of living plus an 1.2% additional rise per year in living standards
• You retire after you reach Age Pension age
• All returns are net of fees
• Results are in today’s dollars
• We recommend you also review the assumptions that MoneySmart list below their calculator.

For case studies on working out how much super you’ll need and planning your retirement, see the following SuperGuide articles:

• Retirement planning case study: Single woman aged 52
• Retirement planning case study: Couple aged 58 and 60
• Retirement planning case study: Couple aged 47 and 48