Busting the $1 million retirement myth

It’s often said you’ll need $1 million in superannuation to live a comfortable retirement. This is a daunting figure for most and has many Australians concerned about the retirement lifestyle they’ll have.

It’s often said you’ll need $1 million in superannuation to live a comfortable retirement. This is a daunting figure for most and has many Australians concerned about the retirement lifestyle they’ll have.

In reality, most Australian workers have nothing like this but report being satisfied and fulfilled in retirement. The Association of Superannuation Funds of Australia (ASFA) say average super balances at retirement are $292,500 for men, $138,150 for women and $355,000 for households. Far less than $1 million.1

So how much do you really need?

When thinking about retirement, we don’t tend to think about our super balance. Instead, we think about a lifestyle we want in retirement and translate this into how much cash we will need to live this lifestyle. We also need to take into account our cash and investments outside of super.

As a guide, ASFA has taken into consideration potential living expenses, excluding rental costs and calculated two retirement categories of ‘comfortable’ and ‘modest’. While your needs may differ considerably it helps to put into perspective the overly-alarming $1 million figure.

Table 1: Savings needed to support a modest or comfortable retirement for retirees aged 65 – 85

 

Savings needed at retirement

Annual spending in retirement

Comfortable lifestyle for a couple

$640,000

$59,808

Comfortable lifestyle for a single person

$545,000

$43,538

Modest lifestyle for a couple

$35,000

$34,687

Modest lifestyle for a single person

$50,000

$24,108

Source: ASFA Retirement Standard – December 2016. All figures in today’s dollars using 2.75% AWE as a deflator and an assumed investment earning rate of 6%. Based on the current means test for the Age Pension in effect from 1 January 2017.

Don’t forget the Age Pension

How can a couple retire with $35,000 in super and still spend the 'modest' $34,687 a year? Currently the age pension makes this possible and is sometimes overlooked when thinking about how much is needed to retire. This is why the lump sums needed for a modest lifestyle are relatively low as the age pension is sufficient to meet most expenditure needs. Currently the full annual Age Pension is approx. $22,700 for an individual and $34,250 for a couple.

What can you do now?

While you don’t necessarily need $1 million in retirement, your financial adviser can review your expectations and help build your retirement plan.

Speak to your financial adviser to discuss your retirement plan.

1. Superannuation account balances by age and gender, ASFA. December 2015.

Source: MLC

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