How much Super is enough?
The age-old question about how much you’ll need when you retire is difficult to answer. But there are more tools than ever to help get you as close as possible to a figure that suits your particular needs.
One of the first stops on the way to figuring out how much money you’ll require in retirement should be the Association of Superannuation Funds of Australia (ASFA) Super Guru website (http://www.superguru.com.au/), & its Retirement Standard. This is essentially a calculation of how much an individual or couple living in Australia might need for a modest or comfortable retirement.
According to ASFA, assuming you own your home, right now the ‘comfortable’ figures stand at $42,861 p.a. for a singles & $58,784 p.a. for couples. ‘Modest’ lifestyle figures drop to $23,662 p.a. for singles & $34,051 p.a. for couples. Those without retirement savings must rely on a less-than-modest lifestyle offered by the Age Pension of $20,393 p.a. for singles & $30,743 p.a. for couples. The ‘comfortable’ figures translate to a retirement saving of around $545,000 for singles & $640,000 for couples. But of course these are simply averages & don’t take into account e.g. an individual’s wishes for a more luxurious lifestyle, or the dollar amounts required by somebody retiring 20 years from now.
For those on higher incomes, the Australian Securities & Investments Commission (ASIC) recommends you target two-thirds of your current annual income, in order to maintain your current standard of living – also a handy guide. You can find more details at https://www.moneysmart.gov.au/.
But what if you retire 10, 20 or 30 years from now? There’s no calculator to tell you what you’ll need in future-dollar terms taking all economic movement into account, but perhaps a rough estimate could be achieved by allowing for compounding effects of the Consumer Price Index (CPI) which measures changes, over time, of a ‘basket’ of goods & services that roughly represents spending patterns.
If it’s assumed that CPI is 2.5% p.a. between 2015 & 2045, then using these figures in the ASIC calculator, the amounts change considerably. For e.g., to enjoy a ‘modest’ retirement, a homeowner couple go from needing $34,051 in 2015, to $71,424 in 2045 & for a ‘comfortable’ retirement, a homeowner couple go from needing $58,784 in 2015 to $123,303 in 2045. As you can see, even an allowance for CPI has a dramatic effect on future value.
When other contributing factors are taken into account – such as the Age Pension rules, people living longer & markets going up & down over time – it’s clear that planning for your ideal retirement lifestyle sooner rather than later can make a big difference.