How much super is enough?

The past two years have seen a number of changes to the super system, designed to make it easier to understand how your super is performing, while also better protecting your retirement savings.

These changes have encouraged more Australians to engage with their super, because they are keen to understand what impacts on their retirement savings.

But what’s critically important is if whether your super will provide you with the funds you need to support your retirement goals and dreams.

Which takes us to the crucial question – how much money do you need to live the life you want to live, in retirement?

The answer to this is of course different for everyone.

Recent research indicates that, with life expectancy on the rise, many of us will spend more than a quarter of our life in retirement – highlighting the value and importance of retirement planning. And retirement planning is more than just super – it can include insurance, other investments like property or shares, pensions, and retirement income products.

Thanks to the power of compound interest, the sooner you can start making your super work for you and your particular retirement goals and dreams, the more it will pay off longer-term.

The earlier you engage and start making your super work for you, the better your chances of having it work for you in retirement.

Step 1 - What income will I need?

Figuring out the income you’ll need in retirement is a great place to start because it’ll help identify your goals which will then help guide the decisions you make when it comes to managing your super, your assets and any other investments you might have.

When looking at how much your super will contribute to your retirement income it is important to regularly review your super’s investment options and super contributions.

While figuring out how much money you’ll need in years or even decades from now may seem like a daunting and complex task, there are three key things to consider:

1. When do you plan to retire and using the average Australian life expectancy as a guide, how many years do you expect to be in retirement?
2. What kind of retirement lifestyle do you want? Do you want to maintain what you have now? Would you be OK with a little less? Do you want more?
3. What are your plans for retirement? Do you intend to travel a lot or purchase property? Do you want to keep some money as part of an inheritance?

The Association of Superannuation Funds of Australia (ASFA) estimates that to have a ‘comfortable’ retirement, single people will need $545,000 in retirement savings and couples will need $640,000¹.

While this is useful, these are general estimates only and it’s important to seek financial advice from a licensed professional to ensure information and advice takes your unique circumstances and needs into account. A ‘comfortable’ retirement will look different for everyone.

Another way of thinking about this as you approach retirement is to think of how much you might need to replace your current lifestyle. This is sometimes called your income ‘replacement ratio’. It is generally based on a retirement income of about 70–80% of the income you earn, because in retirement:

• taxes can decrease due to extra deductions and some tax-free amounts;
• payments tend to reduce whether you own or rent, as you may need less space to live in; and
• the costs of clothing and commuting reduce.

Step 2 - Determine what you’ll have

In order to figure out whether your current super arrangements are working to support your specific retirement dream, you need to estimate how much super you’re likely to have based on your current super balance and contributions. Again, it's important to look at how much super will contribute to your total retirement income alongside your other potential sources of income, such as investments and other assets.

Online resources such as Moneysmart’s retirement planner can help you estimate how much money you’ll have to spend each year once you retire, as well as how fees, investment options and contributions will affect your retirement income over time.

When you retire you may also have access to the Age Pension or a concession card. It may be worth considering whether you’ll be eligible for the Age Pension at retirement, or further into your retirement journey as your other assets and income reduce.

Moneysmart’s Age Pension and government benefits page can help you understand if you are eligible for the Age Pension. CSC also offers a retirement modeler (PSSap Retirement Modeller, ADF Super Retirement Modeller) which you can use to estimate your overall income in retirement, covering income from super, from the Age Pension and even from assets you hold outside of super, such as an investment property.

Step 3 - Make your super work for you

Comparing how much super you’ll need in retirement with how much super you’re likely to have in retirement under your existing super set-up will allow you to determine whether you’ll fall short of the target and if you need to boost your super.

There are a range of ways you can go about improving your super balance, which include:

• Considering your current salary – are you in a position to make additional personal super contributions?
• Considering your current investment options – super funds offer a range of investment options depending on your appetite for risk and it’s important to review your investment options at least annually to ensure they reflect factors like your risk appetite, your life stage, your lifestyle, and when you’re likely to retire and access your super.
• Considering public sector employment - Government employees or public sector workers are typically entitled to a higher super guarantee contribution from their employers.
  • For CSC members in our PSSap fund, most employees receive a 15.4% employer contribution rate, or 16.4% if you’re in our ADF Super fund – both well above the 10% industry standard.

Peter Jamieson is CSC's Chief Customer Officer

We’re here to help

We’re a trusted partner to our customers and we’re here to guide you every step of the way along your super journey towards your personal super goals, empowering you with the confidence to take the next step and sharing our expertise to secure your financial future.

Retirement will be very different for everyone. So, to understand how much money you may need to fund you through your retirement, you first need to have a clear idea of when you want to retire, and what kind of lifestyle you want to be living when you do.

Putting money into super can be an investment in your future self. No matter what kind of advice you need, CSC’s dedicated financial planners are there to help you lay out a path to get there, step by step.

¹ ASFA Retirement Standard