How much do you need for a comfortable retirement? Depending on where you look you'll get conflicting numbers.
Some headlines put the magic number at $1 million in super.
The Association of Super Funds of Australia (ASFA) claims it's $640,000 for couples and $545,000 for singles.
The reality is most Australians retire with far less in super. Indeed, the average super balance for Australians aged 60-64 is just over $300,000.
That may be enough. Here's three reasons why.
1. Super supplements the Age Pension
Most people who retire in Australia do so on a combination of their super and the Age Pension.
Which means even a relatively modest super balance can help top up the Government's Age Pension benefit.
Let's look at an example: A single retiree on the full Age Pension currently receives approximately $24,500 per year, which works out to about $472 a week. That's well short of ASFA's comfortable retirement income of $840 per week. But those numbers don't tell the whole story.
By drawing down some of their super, that same person can top up their Age Pension payments.
Let's assume they have $300,000 in super and draw down the minimum 4% annually*. That comes to $12,000 per year, which works out to about $230 a week. When combined with the Age Pension that's a lot closer to ASFA's comfortable retirement standard.
2. Your super balance continues to grow in retirement
Another reason you may be able to retire on a modest super balance is continued investment returns. In other words, your super balance can continue to benefit from investment returns in retirement.
If you had $300,000 in super and were invested in our Balanced pension option, you would have seen average returns of 8.6% per annum over the last 10 years^. That's $25,800 per year (before fees). Those returns can potentially be drawn down and used to help top-up the Age Pension while maintaining your balance.
The above scenario is subject to a number of caveats, including the Centrelink income test, positive investment returns, life expectancy, and inflation, but it shows how your money may continue to benefit from investment returns, even in retirement.
3. Your super drawdown is tax free
The other thing to keep in mind is that the income you draw down from your super in retirement is tax free, as long as you're aged 60 or older. No income tax means your money can go a lot further.
The rule of thumb is that you'll need two-thirds of your working income to maintain that same income in retirement. For most Australian retirees, that number is achieved via a combination of super savings and Age Pension benefits.
The Australian Government's MoneySmart calculator is a useful tool for comparing income and take-home pay. It can show you how much your current income is taxed, which can help you figure out an appropriate (tax free) retirement income level.
The elephant in the room
Most Australians retire on a combination of the Age Pension and their super. But that doesn't mean everyone qualifies for Age Pension payments.
If your income or assets exceed certain limits your pension payments may be reduced, or you may not be eligible at all.
Income includes money from part-time work, investments, annuities, etc. Your assets may be calculated based on investment properties, business assets, etc.
You can learn more about the impact of income and assets on Age Pension entitlements via the Australian Government's MoneySmart website.
Speak to a professional
A financial planner can help you better understand your retirement options, and how a mix of super and Age Pension entitlements can work together.
Which means even a modest super balance can go a long way towards a more comfortable retirement.
