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Elderly Couple Thinking About How Much Super Do We Need To Retire

How Much Super Do We Need To Retire?

Have you heard the saying that you need $1 million or more to retire?  It is an amount that is often quoted as the ideal for retirement.  While many of us are preoccupied with current financial goals and needs, it is only when we approach retirement do most of us start to focus our superannuation. According to an MLC White Paper[1], close to three in five (56%) were concerned about being able to maintain their lifestyle in 10 years’ time, with those aged 50–70 (61%)—who are more likely to be either already retired or approaching retirement—more likely to worry about being able to keep the same lifestyle.  Whether you are young or old, super is an important aspect of your financial health, however the fact of the matter is there is no singular one-size-fits-all magic retirement figure to reach.  Super relies on compounding returns to grow, so the sooner you give your superannuation focus the better opportunity you give yourself to have a healthy superannuation balance at retirement.

There are conflicting ideas about how much income would be needed to last throughout retirement, some say $250,000, others $640,000, some even $2 million. Christopher Niesche[2] explains that your super is designed to last 20 to 22 years and while many speculate on figures, ultimately there is no correct amount when deciding on your super goal. The figure is as personal as how you like vegemite on your toast. To really understand your ideal superannuation figure, it is important to look at a few key factors relating to your individual circumstances and lifestyle goals.

Let’s Talk About Lifestyle

When you think of your own retirement, what do you want it to look like? Perhaps you long to take a trip of a lifetime overseas, or maybe travel around Australia. Maybe there is a desire to help your own kids out with their financial situation.

Not only would you want to consider your lifestyle goals, you might want to also consider your future needs. It is quite possible that with age comes increased medical costs, so factors such as health care and insurance premiums may need to be taken into consideration.

The ASFA (Association of Superannuation Funds of Australia) suggests a benchmark known as the ASFA Retirement Standard, showing that for a modest lifestyle (allowing for pretty basic activities) that is better that the age pension, a single person would need $28,220 with a couple needing $40,719 (March quarter 2020).

A ‘comfortable’ lifestyle however as defined by the ASFA is one in which there is a choice of leisure and recreation, the freedom to purchase house items, private health insurance, a nice car and clothes and the ability to have regular domestic and occasional international holidays. This lifestyle requires an annual income of $44,183 for a single person and $62,435 for a couple (March quarter 2020). This would call for total lump sum at retirement of about $545,000 ($640,000 for a couple) assuming part age pensions are received. Bear in mind that although this is deemed by the ASFA as a ‘comfortable’ lifestyle, this may not be what you have in mind in order to live comfortably and enjoy the things you would like to have and experience in retirement.

Your Mortgage

One major consideration when working out how much super you will need in retirement is the question of whether you have paid off your mortgage. Depending on how much you owe at retirement, paying off a mortgage will considerably deplete your retirement savings, affecting the quality of retirement you may have.

Start early – Utilise the Power of Compounding Returns

When it comes to super contributions, the power of compounding returns is not to be underestimated. Robin Bowerman from Vanguard describes compounding as earning investment returns on past returns as well as your original funds[3]. Put simply, the earlier you start to make super contributions, the better. The more that is added at an earlier age, the longer those funds can grow. Investing regularly may also keep your investment growing and speed up the compounding benefits. Shrewd investors are also undeterred by market volatility, staying the course as earnings are reinvested in their super.  Returns added to these contributions over time has the potential to leave you with a balance that could set you up for the lifestyle you want to live in retirement.

Whilst it might seem like an unattainable figure, an interesting exercise is to see how much you would need to put away, in order to achieve $2 million at retirement. Use this calculator. The earlier you start putting more money away, the closer you may get to achieving your superannuation goal.  A little, with compound returns over time, can add up to a lot.

Talk to a Professional

When it comes to long term goals and big investments like your super, the value of good advice can’t be ignored. It is a good idea to speak to a financial planner that specialises in superannuation and retirement planning. Having your superannuation looked after and regularly reviewed by a professional can allow you to relax, knowing your retirement strategy is well underway. Elliot Watson Financial Planning can help you achieve more with your super, so that when the time comes, you can experience the freedom to live out retirement in your own individual way. Make an appointment to speak to a professional today.

For expert financial advice from an award winning team get in contact with Elliot Watson Financial Planning 02 4038 1623.

[1] Australia today – Part 2 A look at lifestyle, financial security and retirement in Australia



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Elliot Watson

Elliot Watson*

Elliot Watson is an award-winning Certified Financial Planner with over 15 years' experience. He is passionate about helping people grow and protect their wealth.

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