Making cents of super
What is enough to live on in retirement?
The answer depends entirely on you and the kind of lifestyle you would like to enjoy in retirement. It also depends on how much debt you will have when you retire, and your strategy for minimising this debt or paying it off.
ASFA Retirement Standard says…
As a guide, the Association of Superannuation Funds of Australia (ASFA) released a paper in June 2011 called the ASFA Retirement Standard. This report looked at the cost of living for retirees and estimated the annual budget needed by Australians to fund either a comfortable or modest standard of living in their post-work years.
Weekly budgets for various households and living standards (June Quarter, 2011)[1]
|
|
Modest lifestyle |
Modest lifestyle |
Comfortable lifestyle |
Comfortable lifestyle |
|
Housing - ongoing only |
$56.91 |
$54.63 |
$65.96 |
$76.46 |
|
Energy |
$31.71 |
$42.11 |
$32.18 |
$43.64 |
|
Food |
$75.93 |
$157.28 |
$108.47 |
$195.24 |
|
Clothing |
$17.92 |
$29.09 |
$38.79 |
$58.18 |
|
Household goods and services |
$26.00 |
$35.25 |
$73.13 |
$85.67 |
|
Health |
$35.10 |
$67.75 |
$69.65 |
$122.92 |
|
Transport |
$92.10 |
$94.71 |
$137.25 |
$139.86 |
|
Leisure |
$72.18 |
$107.53 |
$218.72 |
$299.73 |
|
Communications |
$9.21 |
$16.12 |
$25.30 |
$32.21 |
|
Total per week |
$417.05 |
$604.47 |
$769.44 |
$1,053.91 |
|
Total per year |
$21,746 |
$31,519 |
$40,121 |
$54,954 |
FSC says…
Alternatively, the Financial Services Council (FSC) uses 65% of your pre-retirement income as a guide. For example, someone currently earning $50,000 per year would expect to retire with a superannuation balance of:
- For males: $617,500 or ($50,000 x 0.65) x 19 years of life expectancy from 65 years of age; and
- For females: $715,000 or ($50,000 x 0.65) x 22 years of life expectancy from 65 years of age.
Age Pension says…
The Age Pension for a couple is currently valued at about $27,000 per year, and $17,914 for an individual. Clearly, there is a gap in the annual cost of living expressed in the ASFA and FSC research with the Age Pension, so it’s not hard to realise why more than 66% of retirees in Australia are currently on the Age Pension[2].
Do you have enough?
Now the real question you need to ask yourself is, “Will I have enough and what are my options today if it looks like I won’t have enough tomorrow?”
The first step is to look at the super you have today. It’s never too late to use this tax-effective vehicle if you’re still working.
There are many online tools that can help you understand your current superannuation savings, and look at options to improve your projected income in retirement, including consolidating multiple super accounts, making additional contributions, working longer or changing your investment strategy. Of course, you need to ensure any decision you make about your super is right for you. And we can help you with this step.
Making additional contributions
From personal contributions, salary sacrifice to government co-contributions, there are many ways to tax-effectively grow your super with additional contributions. A small sacrifice now could make a big difference to your retirement.
Working longer
By spending a few extra years at work you’ll be giving your super longer to grow and have more time to contribute to your super. And if you are eligible for the Age Pension and still working, according to Centrelink, you may be entitled to a Work Bonus from the government, which can reduce your assessable employment income up to $250 each fortnight. Also the government’s proposal to abolish the age limit for SG contributions means you can still earn more if you continue to work after age 70.
Changing your investment strategy
Could your money be working harder for you? Depending on your attitude to risk, when you plan to retire and your investment goals, changing your investment strategy could help you grow your super faster. There are always risks with investing and you need to strike a comfortable balance between the level of risk you are prepared to accept and your expected investment returns.
Be on track
It’s important to find out how much you will need in retirement, and work out if you’re on track to enjoy the retirement you want. To ensure you make the most of your super, call us today.
[1] The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated. Source: ASFA Retirement Standard, 'Budgets for various households and living standards' (June quarter 2011)
[2] Australian Bureau of Statistics, Retirement and Retirement Intentions, July 2006 to June 2007
What you need to know
This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of the premium you pay and/or the advice fee you agree with us. Some of the information in this article is based on our interpretation of the law. It is a summary of the subject matter covered and is not intended to be comprehensive tax or financial advice. No reader should act on the basis of this article without obtaining specific professional advice. Further details are available from your planner or AMP Financial Planning Pty Limited, telephone 1300 157 173.
