How much Super will you need?

According to ASFA, a comfortable lifestyle requires approximately $42,433 per year ($810 per week) for a single person or $58,128 for a couple ($1,110 per week).

But that’s not the full story. Keep in mind that: 1) This assumes you own your own home. If not, you’ll have to add your rent or mortgage costs; and 2) Your income needs will depend on your specific situation. If you have big travel plans, remaining debts, or children or grandchildren to support, your needs could be much higher.

How much Super will you have?

The numbers above amount to approximately $430,000 in retirement savings, or $510,000 for couples, however ASFA data shows that in 2011-12 the average super balances of Australians was $197,000 for men and only $105,000 for women!

The result? If you’re anywhere close to the average Australian, you’ll likely need to rely on the age pension in retirement – your super will run dry about 10 years into your retirement. That leaves you in a pretty precarious spot if you’re planning on living to 75+.

And I’ve written previously about why the Age Pension is not a safety net you want to rely on.

Why you’ll fall short

There are a number of reasons why people consistently fall short of their retirement goals. Of course a lack of urgency plagues us all, but what that does is leave us at the mercy of other hazards lurking in the shadows.

  • HSBC’s Future of Retirement report found that paying off a mortgage or other debts was a significant barrier a majority of Australians (51 per cent) to financially prepare for retirement. Basically we put off investing ‘until after we’ve paid off the mortgage”. Unfortunately, this leaves us well behind schedule.
  • Interruptions to employment aren’t usually taken into account in our calculations (pregnancies, illness, injury, in between jobs, career changes, starting a business, etc).
  • Inflation means your money will buy a lot less in the future than it does now. The figures quoted above are the amount you’d need to retire today, but in 40 years inflation alone will more than triple these amounts. This is another trap that will cause us to fall short.

What to do about the shortfall?

1) Set your financial targets a lot higher to give yourself a buffer from all of the factors above.

2) Start sooner (now). You can’t afford to wait until you’ve paid off your mortgage (and you don’t need to). Start investing a little extra right away and let compound interest work it’s magic for you.

3) Make investments in addition to your super payments. In many cases it’s possible to invest in property for example with little or no out of pocket expense. What this does is allow you to make investments today, and take advantage of a full decade of growth of your asset (it could double) while your mates wait that extra ten years til their mortgage/kids/etc are out of the way. In the case of a house, that’s a decision that could give you a $400k head-start without saving any harder.

Step 3 is our specialty, and most people start by booking one of our renowned 1-on-1 workshops, which you can book here.

Andrew Clough | (07) 3510 2122