One of the biggest questions asked about super is the balance to aim for. It is difficult to commit to saving without a clear target, so thinking about your income goal and the balance you will need to fund it is a great place to start your retirement planning journey.
The widely reported ASFA Retirement Standard suggests a single person can enjoy a ‘comfortable lifestyle’ on around $51,000 a year while a couple would need $72,000 (around an additional 40%) for the same standard of living. While this level of income may be comfortable for many, perhaps you would like to take part in a wider range of leisure activities, take more frequent holidays, or simply enjoy some finer food and wine options on a regular basis.
If $60,000 a year for a single or the equivalent $84,000 a year for a couple sounds more like your kind of retirement, the next step is to work out how much super you will need to fund it.
Crunching the numbers
The super balance required to provide a set level of income varies depending on many factors including when you plan to retire, how long you need your money to last, how your super is invested, and whether you have other investments outside super that will provide some of your retirement income.
The tables below show the super balance required to provide annual income of $60,000 for a single person or $84,000 for a couple retiring at age 60 or 67. The figure of $84,000 for a couple is 40% more than the target income for a single person, in line with the additional proportion of income required for a couple according to the ASFA retirement standard.
Retiring at age 60 means being fully self-funded until you become eligible for the Age Pension at 67.
We have used TelstraSuper’s Lifetime Income Calculator to model outcomes based on investing the entire balance in an account-based pension, in the investment options shown.
We chose this calculator because it is one of the most comprehensive available, and provides output based on the likelihood of reaching your goal. We have selected the default ‘highly likely’ option and target age of 92, meaning there is an 80% chance the set income will last until this age. In many cases income would last beyond the target but there is a 20% chance, based on the expected variability of investment returns, that the goal would not be reached, with either the balance being reduced to zero before age 92 or providing a smaller income. Once the balance is exhausted, future income is generated from the Age Pension alone.
Transfer balance cap
Keep in mind that there is currently a $1.9 million transfer balance cap on the amount of money you can shift into a super pension account. Excess amounts will need to remain in a super accumulation account or outside super, where earnings will be taxed. The interaction of the transfer balance cap with other income and investments can be complex, so we advise you to seek professional advice if you feel that it may apply to you.
The transfer balance cap applies to individuals, which means a couple could have up to $3.8 million in individual accounts. However, if a couple has one account between them in a single name, the lower individual limit applies.
Note
The transfer balance cap was originally set at $1.6 million. Since then, indexation has increased the cap to $1.9 million. The cap will continue to be indexed to CPI in $100,000 increments in future.
Learn more about the transfer balance cap.
Where to go for more
We hope that the figures in the tables below will get you thinking about the ballpark you need to aim for, but remember that this data represents a small selection of possible outcomes and cannot substitute for a personalised calculation.
To build a picture of your own circumstances, use a good quality retirement projection tool such as the TelstraSuper Retirement Lifestyle Planner or Mercer Retirement Income Simulator. Make sure you include as much information as possible about your circumstances, including investments outside super, and review and adjust the assumptions including fees to ensure your projection is as meaningful as it can be.
If you are interested in using a lifetime pension to provide some of your retirement income, the TelstraSuper Lifetime Income Calculator is also worth a look.
While we used 80% certainty in our modelling above using TelstraSuper’s tool, this is simply the default option. When running your own calculation, you may instead choose 70% certainty, or 90% certainty, based on the risk you are willing to accept.
To help you navigate these and other free retirement planning tools, SuperGuide has developed a range of video demonstrations. You can find these 'How to' guides in the calculators section.
Learn more about the factors to consider when planning how much super you need to retire.
Disclaimer: This article is only intended to give approximate figures about the range of super required to fund a retirement income of approximately $60,000 per year for a single and $84,000 per year for a couple. These figures do not consider your personal circumstances and are estimates only. We recommend you undertake your own additional research for your own retirement planning, and wherever possible seek independent financial advice.
