FINANCE: How much super should you have right now?
COMMENT BY CARA BRETT: One of the things I do with my clients is look after their super funds. When we get to talking about it and looking at the balance, most people have absolutely no idea how much they should have in their account.
Today I want to break it down into the age categories and the figures so that you can see if you are on track.
The Association of Superannuation Funds Australia says that you need $430,000 to have a 'comfortable' retirement.
This assumption is based on the fact that you will also get access to the age pension along with your super balance.
That super balance equates to an income of approximately $42,254 per year for a single person to live comfortably in retirement.
Are you happy with that?
Let's assume you are, and that we can count on the age pension when you do eventually get there.
In order to reach the above target, you should have approximately the following in your super fund at different ages (see the assumptions at the end):
Let's go further. Let's assume you would like $70,000 per year to live on in retirement.
You have decided that you still want to go on holidays in your twilight years.
The following table outlines the different balances you will need (approx) in your super funds at different ages in order to achieve this:
Keep in mind, these are all based on approximations and assumptions, but the above might help you decide whether your super fund is where it should be given your age and the type of retirement that you are ultimately after.
In order to achieve the above super balances, it is likely that you would need to salary sacrifice into your super fund over your working life.
To put it all into perspective, let me show you a quick case study.
A 25 year old starts their working life with no super.
They enter the workforce earning $45,000 per year, which is assumed to increase each year by 3%.
They make the minimum mandatory super contributions only, and don't take any time off to travel or have children.
The below table outlines the expected superannuation they would have:
This is essentially the situation if you 'did nothing' so to speak.
Bear in mind that most people don't just continually work through like this, so your situation may be very different to the above.
It's actually not too bad, however it won't necessarily provide you with the 'comfortable' retirement.
You will be able to receive $42,254 per year in retirement until you reach age 79.
At that point, your super will run out and you will be left with the age pension only, which is currently $21,913.
Prior to that however, you are still relying on the age pension to top up your super.
By your second year of retirement, you will already be receiving some form of age pension entitlements to ensure that you achieve that yearly income of $42,254.
All of these figures however assume two major things:
1) that the age pension will still be available, and
2) that you will qualify for it.
Assumptions: 7% earning rate in accumulation phase, and 4% earning rate in pension phase. 3% CPI assumed on income and earnings. Calculations have been completed for a 25 year old who enters the work force and has no long term breaks in employment.
Cara Brett is a Senior Financial Adviser for Bounce Financial. Follow her advice blog here.