When $1m isn’t enough

The many Australians who simply rely on employer contributions to their super fund to save for their retirement in the next 20 years will not afford the retirement lifestyle they desire.

Those unwilling or unable to enjoy life on an Age Pension of around $30,000pa for a couple, around 80% below average earnings, will have to:

  • Work for longer, or
  • Increase contributions to super as early as possible

While we have one of the most respected retirement savings systems in the world, many Australians have not benefitted from having super all their working lives, but even younger workers may have to accept a reduced lifestyle if they simply do nothing.

For example, a 30-year old worker on an average salary of $60,000pa will have an estimated $1.1m in super by age 65, which would only sustain a ‘comfortable’ retirement until age 77 according to research by Deloitte.

To prevent this lifestyle cut, a 30 year-old male needs to make extra contributions of 5.4% of their pay while a female, who lives longer on average, needs to contribute an extra 7.5% of pay.  However, if she takes extended maternity leave or changes to part-time during her working life then even more contributions will be needed.

To see how much you might need and what ‘comfortable’ means, please see our page “How much do I need in retirement”.

For those wanting to avoid relying on just the Age Pension in retirement, there is a number of strategies you can start adopting, such as:

  • Start increasing super contributions;
  • Review super asset allocation to make sure you have enough growth assets (see diagram below);
  • Make sure you are well insured against the risk of serious illness or injury disrupting your savings plans;
  • Consider splitting super contributions to a lower paid or non-working spouse each year to equalise account balances over time;
  • Those 54 or more:  seek advice about a Transition to Retirement income stream to help grow your super balance faster without disrupting your monthly cash flow.
  • Those 59 or more: seek advice about withdrawal and re-contribution, especially where you are part of a couple with unequal balances.

While it is seldom too late to start planning, the earlier you start the less the pain and stress later, so please free arrange a time to meet with Michael Rees-Evans, Partner – Wealth Consulting if you would like advice on what to do about your own future.

Important note: this information is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.

AustralianSuper Graph

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