Will You Have Enough To Retire On?
Voices in the “super sphere” say a comfortable retirement requires a million dollars in a super fund. Financial adviser and author of The Joy of Money, Kate McCallum, explains that it is possible to live comfortably with just a quarter of that
If you’re afraid of not having enough money to last you in retirement, you’re not alone – most women are worried. Some are downright terrified.
Jane, a teacher, is 65 and is concerned about having to scrimp and save as a retiree just to ensure her money lasts as long as she does.
“I don’t want to be poor. I want to have a nice lifestyle, maybe do some travelling, and not have to work,” she says.
It would be helpful for Jane to have an idea of what her target amount of super is. A friend told her she needs a million dollars to retire, and with around $250,000 in her super, she feared she would have nowhere near enough.
But the million-dollar benchmark is a false flag. When age pension benefits are included in the picture, most women homeowners will be able to enjoy a comfortable retirement.
If you want to live comfortably in retirement, analysis by the Australian Super Fund Association (ASFA) suggests that a home-owner couple would need $640,000 in savings and a home-owner single would need $545,000. This is anticipated to provide an annual income (including a part pension) until death (based on average life expectancy) of $63,352 for a couple and $44,818 for a single.
If you accept a more modest lifestyle (with income of $41,170 for a home-owner couple and $28,514 for a home-owner single), ASFA says that you can do this largely with the age pension. It estimates the amount of money you need in retirement savings, whether you’re a single or a couple, is just $70,000.
The sweet spot is about where Jane is now – with approximately $250,000 in savings which is a long way from the mythical million.
Let’s look more closely at Jane’s case.
Jane’s story
Jane is age 65 and works as a casual teacher earning around $45,000 a year. She has $250,000 in super, which is invested in a balanced mix, and owns her own apartment. She plans to retire in two years at age 67 when she will be eligible to receive the age pension. Average life expectancy for a woman of Jane’s age is 85.
Jane would like to be able to spend about $750 a week, which is $39,000 a year. It’s likely that Jane will receive the full pension (currently approximately $25,155 a year), so this will do much of the heavy lifting. And the good news is that, by the time she retires, Jane’s super balance is expected to grow to about $264,000 and this will endure and contribute the difference up to the age of 87.
Average annual investment returns are estimated net of tax and investment management fees as 4.78% before retirement and 5.66% in retirement. Projections are illustrative only and prospective in nature and, as such, should not be taken to provide an estimate of the returns that may be achieved. Returns can go up or down and could be negative in some years.
All figures are shown in today's dollars. This is designed to reflect the impact of inflation and potential rises in living standards, by applying an annual discount rate of 3.2% per annum.
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