How much super do I need to retire? Retirement planning is a question that we are asked quite often and the answer may well surprise you. Basically, the amount of super you need will depend entirely on what lifestyle you plan on having when you retire. If you don’t need a lot of income when you retire then you don’t need much super, but if you expect to have an income similar to your current salary then your super needs to be much higher than you think.
You see, there are some variables when it comes to retirement.
If you think about it, some things change as you get older. Let’s face it, your health will deteriorate as you age so more money will go to health care. You may need to move to a retirement home or require special care. All of these are expensive. However, your health won’t worsen immediately so your first foray into retirement will be filled with eight extra hours that you can use for recreation, hobbies, looking after the grandchildren etc. It’s likely you may be spending more initially than you realise.
The good news though is that some spending may reduce. The money you spend getting to work, be it on public transport or by car, will no longer be required when you retire, as will the early morning coffee on the way to work. If you are eligible for a health card you may well find that discounts to your water, electricity and gas bills will apply to. Even car registration will be cheaper and because you are not driving as much the fuel costs will reduce.
Naturally, this could be offset by using your time to meet friends more often, perhaps travel and even capital purchases like caravans or a new car.
So how much do I need to retire comfortably?
Well, according to the Association of Superannuation Funds of Australia (ASFA) Retirement Standard (March 2017) a comfortable lifestyle for a couple will require almost $60,000 per annum while for singles it’s almost $44,000. It should be noted that this amount assumes you own your home and remain reasonably healthy.
On the other hand the Government’s Money Smart website suggests that you will need about two thirds of your current income to keep the lifestyle you are used to.
Obviously, you may have your own ideas on the amount you want to spend during retirement.
If you want to know how to retire early a key component of that is your superannuation balance and how it relates to the income you require.
Let’s get back to our original question. How much super do I need to retire? In fact, lets refine it a little. How much Super do I need to retire at 60? To help you work it out we’ve tried to make it very simple by providing a “rule of thumb” calculation to give you a ball park figure.
How much money do i need to retire
Desired Annual Income divided by Probable Yield equals Superannuation Balance
e.g. $60,000 / 4.00% = $1,500,000
In this example, a Super balance of $1.5M invested at 4% will pay $60,000 every year. This is a very simple way of understanding how much you should have.
However, it does give you an understanding of the amounts you need invested to produce an income in a very broad sense. Obviously this type of calculation doesn’t take into account CPI or any reductions to the balance for capital purchases. What we mean by that is that an annual income of $60,000 this year has less purchasing power next year and less again the following year even though the $60,000 remains constant. That is inflation working against you.
It’s quite clear that calculating your retirement income is a very complicated area that requires expert advice.
What should I do if there isn’t enough Super?
Find out more about the range of strategies you can use to help grow your super by making an appointment with one of our Financial Planners. They are well versed in dealing with the complexities involved with retirement planning and are highly skilled in working through retirement issues.
When it comes to retirement, it’s never too early to plan ahead.
Investors Direct are a full service investment property advisory firm focused on growing wealth through property investing in Melbourne, Sydney and Brisbane.