Retirement: It’s the $1 million question

It’s the big scary number that can strike dread into the heart of anyone approaching retirement.

It’s often said Australian couples need $1 million in super for a comfortable retirement, but most of us only have $100,000 in our coffers when the day comes, so it’s no wonder many people are a little spooked.

But let’s look at the logic of that pronouncement.

A comfortable retirement is defined as one in which a healthy retiree can enjoy a range of recreational and leisure activities, and can afford to buy household goods, a decent car, private health insurance and domestic and occasional international holidays.

The figure considered necessary to achieve this is $59,619 for a couple, or $43,372 for a single person.

And a couple with super of $1 million invested with returns of 7 per cent could be expected to generate an annual income of $81,570 from the age of 65 to 87, well above the threshold deemed to be required for a comfortable retirement.

But rather than look at the bald numbers, it’s more useful to look at the way you live, and aim for an income that is 70 to 80 per cent of what you had when you were working.

Not many people would expect their lifestyle in retirement to take a dramatic step up from when they were working. If you weren’t taking regular luxury holidays when you were employed, you probably wouldn’t expect to start at retirement.

You should also take into account that your living expenses are likely to be lower when you retire. With any luck the kids are long gone and self-sufficient and you will no longer have the expenses of commuting, work lunches, work clothing and all the other costs involved with having a job.

And add the Age Pension to your superannuation income, and in many cases a comfortable retirement is within reach.

For example, a part-time worker who retires after earning an annual wage of $30,000, with $186,000 in super, can expect a retirement income of $31,900, including income from super and the Age Pension. That’s actually more than they were living off when they were working.

A worker who retires after earning an annual wage of $55,000 with $325,000 in super, will end up with a retirement income of $34,000, about 79 per cent of their working income.

And remember, as you draw down on your superannuation, you become eligible for a larger government Age Pension.

Obviously, the more super you have, the higher income you’ll have at retirement.

One way to boost your super is via a transition to retirement strategy, an option available to anyone who has reached the age at which they can access their super, 55 for most people approaching retirement.

Under this scenario you reduce your work hours, but don’t stop working entirely.

You receive an income from your superannuation, which means your income doesn’t have to change despite the fact you’re working less, but you continue to build your super via your own and your employer’s contributions.

Keep your super invested when you retire and grow your income.
Turn your super into an income stream when you retire and you can receive a regular income to top up the Age Pension, while the balance stays invested.

Everything you need to know is at industrysuper.com.