How much do we need to retire?

Written by Ronald Pratap

on September 20, 2016
Posted In

How big is your retirement savings?

When it comes to superannuation, size does matter. Your employer’s super contributions may not always be enough if you want to be financially secure when you do retire.

Your retirement savings is going to be the investment vehicles you use to draw down a income stream in retirement so you will also try to ensure these funds are easily accessible and not held up in illiquid assets.

You may benefit from consolidating your retirement accounts into one central account. Consolidating accounts can help you make sure your savings are invested appropriately for your overall goals, track the performance of your holdings and, in some cases, discover more investment choices and incur lower fees with the improvement to platforms and administration.

How much is enough?

How much extra money you contribute to your super depends on what you’ll need to live off once you retire. The amount of superannuation or retirement benefits you need depends on:

  • How long you live
  • What type of lifestyle you want
  • Future medical costs

The table below will give you a rough idea of how much money you need to support a modest or comfortable retirement. It applies for people retiring at age 65 who will live to an average life expectancy of about 85. It also assumes you own your home and have paid off debt.

ASFA Retirement Standard Annual living costs Weekly living costs Couple – modest $34,216 $658

Couple – Comfortable $59,160 $1,138

Single – Modest $23,767 $457

Single – Comfortable $43,062 $828

ASFA estimates the lump sum needed to support a comfortable lifestyle for a couple is $640,000 (or $545,000 for a single person) assuming a partial Age Pension. ASFA also estimates that because a modest lifestyle is mostly met by the Age Pension the lump sum required to support it for a couple is $35,000 ($50,000 for a single person).

Source: ASFA Retirement Standard, June Quarter 2016.

Work out how much you need

Knowing how much you’ll need when you stop work is a good starting point. The key is to act now and do as much as you can to grow your super and understand what expenses you will require when you do stop working. Questions to ask yourself will include:

Are you looking to travel and will you require a yearly budget for this?

Will you receive a Part pension based on your assets?

Will your partner retire at the same time as you?

Will current super contributions from my Employer be enough?

Can I cut back and start saving more for my retirement?

How can I make the most out of my super?

An effective way to take advantage of super’s tax concessions is through salary sacrifice. Salary sacrifice strategies have three main benefits over after tax contributions or placing savings outside of a superannuation environment which include:

  • You’ll have more money to invest: your salary is taxed up to 49% (depending on your marginal tax rate), while a salary sacrifice contribution is taxed a maximum of only 15%.
  • You’ll pay less tax on earnings: earnings on your savings or managed fund may be taxed up to 49%, while earnings inside a Super environment are only taxed at a maximum of 15% with some funds allowing the ability to rollover benefits into Pension phase without creating a capital gains liability.
  • You’ll reduce your income tax: making salary sacrifice contributions reduces your taxable income, and therefore you may pay less income tax.

Seek help and advice

Whatever life stage you’re at, there may be times when you need a little help with your super.

Whether you’re starting out, nearing retirement, or just looking for some general advice, RP Wealth Management has a range of services to suit your individual needs.

This article however is general in nature and largely confined to assistance with your super interests. They don’t take into account your complete personal financial objectives, situation or needs and should not be taken as personal advice.

If you are looking for more comprehensive Financial Advice then we can provide you with that service by sending an email to ronald.pratap@rpwealthmanagement or calling 0434 502 079 for a initial complimentary discussion.

Ronald Pratap

Principal Financial Planner at RP Wealth Management | Financial Planning l SMSF I Insurance l Property Advisory. Our purpose is to provide our clients with sound advice and direction to assist with their financial affairs and help them make the best choices in achieving what is important to them.

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