Retirement planning can be overwhelming, especially when trying to figure out how much superannuation you’ll need to retire.
While there are general guidelines available, the amount you need is highly personal and depends on various factors.
In this article, we’ll dive into the key factors that influence your retirement needs. We’ll also explore some practical tools to help estimate the amount of super you’ll need for a comfortable retirement.
How Much Super Do You Need To Retire?
According to the Association of Superannuation Funds of Australia (ASFA) the amount a single person needs for a comfortable retirement is $595,000 and the amount a couple needs is $690,000 (combined).
These figures are based on retirement at age 67 and covering annual retirement expenses of $51,630 for a single person and $72,663 for a couple.
While these figures might give you a rough guide, we both know that you’re not the type of person who gets pigeon-holed into some one-size fits all retirement plan.
You’re unique and your retirement plan should be too.
So what factors should you be considering when determining how much super you need for retirement?
Key Factors Determining Superannuation Needs
Here are some key factors that can help you envision what your retirement lifestyle might look like.
The amount of super you’ll need depends on several key factors. Let’s dive into these key considerations to help you plan effectively for your retirement.
Your Retirement Lifestyle Expectations
What are your retirement lifestyle expectations? Will your everyday expenses be higher or lower in retirement than they are now?
Are you modest, frugal and enjoy the simple pleasures, or do you spend a bit more, drive a nicer car and splash-out more on travel?
The retirement lifestyle you lead and the expectations you have will be a major factor in how much super you need for retirement.
The higher your expectations and expenses the larger your super balance will have to be.
To give you an example , even if you were to only spend an additional $800 each month in retirement for 30 years, you would need an extra $185,000 in super at retirement.
Another significant factor when considering your retirement needs is your retirement age.
Your Retirement Age
Your retirement age is probably the second most crucial component of calculating how much you need in retirement, for two reasons.
Firstly, the earlier you retire, the more super you will need to to cover retirement expenses for longer – based on us all having the same statistical life expectancy.
Secondly, the Age Pension is a social security payment that helps fund retirement for a large majority of Australians. The earliest that an Australian is eligible for Age Pension payments is at 67.
Therefore, retiring at age 67 provides the potential for your retirement income to be immediately supplemented. Whereas retiring prior to age 67 will mean that all of your expenses are covered from your own super and investments, causing them to deplete at a faster rate.
Obviously each year that you are reliant on your superannuation only will have compounding effects causing your super balance to snowball down at a faster rate, in a non-linear fashion.
My point is, the closer you retire to age 67, the less super you need to retire.
Casual Work
Many of our clients continue to work in some capacity after retirement, not out of necessity, but because they enjoy staying mentally active and engaged in the workplace. The extra pocket money is a nice bonus too.
Is casual work something you would consider in retirement? If so, this can make your super last much longer.
Supplementing your income needs, especially in the initial years of retirement, reduces the drawdown on your superannuation, giving more time for investment earnings to grow.
By continuing to supplement your income through casual work you’ll need less super overall to fund your retirement .
Importantly, the health advantages of staying engaged in the workplace shouldn’t be underestimated. Remaining professionally active can boost mental well-being, provide social connections, and contribute to a sense of purpose—all crucial factors in maintaining good health during retirement.
Life Expectancy And Longevity Risks
When considering how much super you need for retirement, it’s important to be mindful of how many years your retirement will be.
Each year, the Australian Bureau of Statistics releases life expectancy figures for men and women. This can be a great starting point for calculating how long your retirement savings need to last. However, there are a few considerations around this.
For instance, your statistical life expectancy may be higher or lower based on your sex, where in Australia you live, your socioeconomic circumstances, or your race – to name a few.
If your retirement plan only caters for your superannuation to last until, say, age 85, but you end up living until age 95, have you considered how those final ten years might be funded?
Your Marital Status
The benefit of being partnered is that you will have many shared costs and because of this, as a rule of thumb, retirement expenses should only be around 50% greater than a single person.
Understanding what your expenses will be throughout retirement as a couple and optimising how such expenses will be funded can help you calculate how much you need for retirement.
A couple will also receive higher Age Pension entitlements, combined, compared to a single person and will have higher thresholds for eligibility, due to two people being assessed. However, neither Age Pension payments, nor thresholds will be doubled.
Speaking of the Age Pension…
Age Pension Eligibility
The Centrelink Age Pension will assist the majority of Australians at some point throughout retirement. Some will rely wholly or largely on it for the entirety of retirement, for others the Age Pension will provide a small supplement to their other sources of income. There will also be many who might not be eligible for Age Pension payments immediately at retirement, but it could form a big portion of their income needs in their later retirement years.
Either way, understanding how the Age Pension can assist your retirement needs is critical to knowing how much super you need for retirement.
Home Ownership and Living Arrangements
Your home ownership status and whether or not you have any residual mortgage at retirement will help you figure out how much super you need for retirement.
If you are a non-homeowner, you will need to make an extra allowance for rental costs, if this is an expense you will incur.
On the plus side, your thresholds for Age Pension eligibility will be higher, meaning you can have more investment assets, yet receive the same Age Pension payments as a homeowner. Plus, you could be eligible to receive rent assistance.
Each of these factors will play a part in the amount of super you need for retirement, which is why each retirement plan is so unique. However, there are ways that you can estimate how much super you need for a comfortable retirement.
Estimating Super for a Comfortable Retirement
Significant research has been conducted by the Association of Superannuation Funds of Australia (ASFA) in relation to retirement income needs.
Broadly, they provide a breakdown of retirement expenses for both a modest retirement and a comfortable retirement.
Modest Vs. Comfortable Retirement Lifestyle
The difference between a Modest and Comfortable retirement lifestyle depends on the certain qualities associated with each, as follows:
Modest Retirement
A Modest Retirement according to ASFA is defined as covering expenses slightly above what the full Centrelink Age Pension would provide. Specifically, a Modest Retirement is said to include:
- Basic health insurance;
- Infrequent exercise;
- Leisure activities; and
- Social activities with family and friends.
Comfortable Retirement
A Comfortable Retirement is defined as allowing retirees to maintain a good standard of living and covering a number of additional retirement expenses including:
- Private health insurance;
- A range of exercise and leisure activities;
- The occasional restaurant meal;
- An annual domestic trip; and
- An international trip once every seven years.
So, where do you sit? Are you content with a modest retirement? Would you prefer a comfortable retirement? Or are you aiming for something a little fancier?
The best way to find out is to actually calculate what you think your retirement expenses might be.
Calculating Retirement Expenses
There are a couple ways to calculate your retirement expenses. Some people prefer to assume that their retirement expenses will be the same as their pre-retirement expenses; because even though some of the types of expenses will drop off, there will be new and different expenses that will take their place, so all will work out in the wash.
If you would prefer to be more precise, you might consider completing a budget that takes into account all of the expenses you expect to incur throughout retirement. To do this, you might already have your own spreadsheet, or you can use an online budget calculator to assist.
Utilising Retirement Calculators And Planning Tools
An online budget calculator for retirement can break your expenses into categories and type of expenses to be incurred, which can give you greater certainty around what your expenses will be in retirement and ultimately how much super you will then need to retire.
Here is a budget calculator that can help you prepare for retirement.
Ultimately, the ASFA figures provide you with a bit of a guide as to how much super you need to retire; however, this assumes a certain level of expenses and a specific age for retirement.
There are so many factors that influence how much you need to retire. You might be able to get a more personalised outcome by using a retirement planning calculator such as this one. However in my opinion, there is no substitute to obtaining personal retirement planning advice from a specialist retirement planning financial adviser.
Toro Wealth specialises solely in retirement planning advice. Our aim is to give you confidence around when you can retire, the retirement income you can achieve and how to optimise your financial position in the lead-up to retirement. If you’re interested in learning more about our service and cost, click here.
FAQ’s About How Much You Need In Super
Here are some frequently asked questions around how much super you need to retire.
How Much Does a Single Person Need To Retire?
A single person needs approximately $500,000 to lead a comfortable retirement and cover expenses of $52,000 p.a. until age 90. This assumes an investment return of 3% p.a. above inflation.
How Much Does a Couple Need To Retire?
A couple needs approximately $700,000, combined, to lead a comfortable retirement and cover expenses of $73,000 p.a. until age 90. This assumes an investment return of 3% p.a. above inflation.
How Much Super Do I Need to Retire at 55
A single person would need approximately $720,000 to cover a comfortable retirement of $52,000 p.a. and a couple would need $1,010,000 (combined) to cover expenses of $73,000 p.a. until age 90, based on an investment earnings rate of 6.5% p.a. and inflation of 3.0% p.a.
How Much Super Do I Need to Retire at 60
A single person would need approximately $500,000 to cover a comfortable retirement of $52,000 p.a. and a couple would need $700,000 (combined) to cover expenses of $73,000 p.a. until age 90, based on an investment earnings rate of 6.5% p.a. and inflation of 3.0% p.a.
How Much Super Do I Need to Retire at 65
A single person would need approximately $390,000 to cover a comfortable retirement of $52,000 p.a. and a couple would need $500,000 (combined) to cover expenses of $73,000 p.a. until age 90, based on an investment earnings rate of 6.5% p.a. and inflation of 3.0% p.a.
How Much Super Do I Need to Retire on $50,000 a Year?
To retire on $50,000 a year from age 65, a single person would need around $350,000 and a couple would need $100,000 in super to cover expenses until age 90. This is based on an investment earnings rate within super of 6.5% p.a. and inflation of 3% p.a.
How Much Super Do I Need to Retire on $100,000 a Year?
To retire on $100,000 a year from age 65, a single person would need around $1,750,000 and a couple would need $1,250,000 (combined) in super to cover expenses until age 90. This is based on an investment earnings rate within super of 6.5% p.a. and inflation of 3% p.a.
How Much Does an Average Australian Retire with?
The average Australian retires with approximately $390,000 in super, which is broken down into $414,000 for men and $370,000 for women, assuming a retirement age of 65.
