How much is enough in super for a comfortable retirement?

One of the most common questions posed by those looking at their superannuation approaching retirement is, “How much is enough to retire?” This week LJ Financial looks through the studies and polls to decipher what will ensure a comfortable retirement.

One of the most important questions that should be assessed before any investment strategy is established, any tax reduction strategies are put in place, or even whether it makes sense to look at getting retirement advice is, “How much do I/we want to live on in retirement?”

A recent global survey conducted by HSBC found that four out of ten retirees in Australia believe they did not prepare adequately for a comfortable retirement. In addition to this, it has been found that just below two thirds of those who qualify for the government pension rely on those payments as their primary source of income rather than their superannuation fund.

How much is enough?

Before considering an absolute figure, a general rule of thumb is to ensure that you are debt free by the time you decide to retire and that you create an environment whereby you are not servicing any repayments. The only exception to this is when you have investment debt that is positively geared eg. A property where the yield generated more than covers the expenses associated with holding the asset.

The Association of Superannuation Funds of Australia recently conducted a study which took into account the following parameters.

1. If you retire at age 65 and your only outgoings were lifestyle expenses.
2. You lived to the average life expectancy of 85.

For a couple to live “modestly” the annual living expenses were approximately $31,500 and to live “comfortably” the annual living expenses are around $55,000 per annum. For a single person “modest” living equates to approximately $22,000 and for a “comfortable” lifestyle $40,300 per year would be adequate.

Depending on who provides you with the information you should conservatively aim for deriving an income per annum of approximately 5% of the value of you investment assets. This is conservative however given that average returns by most superannuation funds in the last ten years around the 4 – 7% mark this seems like a realistic figure. Having considered this, below are approximate lump sum targets retirees should be aiming for to ensure a comfortable retirement.

1. “Comfortable” couple - $1,100,000 in their superannuation funds
2. ”Comfortable” single - $806,000 in his or her superannuation funds

Ultimately it comes down to the lifestyle that you would like to live in retirement, but there are couple of important factors that people should consider. Firstly, the earlier you implement a strategic savings plan the better off and more comfortable you will be in retirement. A financial adviser can take into account all aspects of your personal financial situation, develop a plan and work with you to ensure you reach your retirement savings goals. Secondly, engage and utilise you superannuation. Super is one of the most tax effective structures available to all Australians in retirement as it becomes essentially a tax free environment once you start drawing a pension.