Retirement planning case study: Single woman aged 52

• Deb (52) is divorced and single
• She earns $60,000 per year and has just $85,000 in super after taking time out of the workforce to raise her two children who are now independent.
• She is on track to own her home outright within a few years but has no other investments outside super.
• She won’t be eligible for the Age Pension until she’s 67 and is resigned to working full time until then.
• Deb is worried that she won’t have enough savings to live comfortably in retirement and, at age 52, wonders if she’s left it too late to catch up.

The short answer is that it’s never too late to boost your super while you’re still working and earning an income. Deb’s net income after tax and Medicare levy is $50,433 per year. It’s generally accepted that you need 66–80% of your pre-retirement income to continue your current standard of living. This assumes you own a home that is fully paid for by the time you retire, which Deb aims to achieve. As Deb’s savings and assets are relatively low, her target income will be closer to 80%, or $40,346 in today’s dollars.

She currently receives her employer’s 10.5% Superannuation Guarantee contributions of $6,300 per year but makes no additional contributions.

According to MoneySmart’s Retirement Planner calculator, if she does nothing she will retire with an estimated super balance of $225,938, which would give her annual income of $36,892 per year, including the Age Pension, from age 67 to 90.

Initial estimated annual retirement income until age 90

Source: MoneySmart Retirement Planner

That’s a fair way short of her target income of $39,066, although it’s substantially better than the ASFA Retirement Standard’s modest income for a single person of $30,063.

There are a couple of things she can do to boost her retirement savings, although she has ruled out working beyond age 67.

Deb is confident she can afford to make a personal contribution to her super fund of $400 a month. To find out whether she is better off making a before or after-tax contribution she checks the MoneySmart Super Contributions Optimiser calculator.

This reveals she will get more bang for her buck by making a pre-tax contribution, either through salary sacrifice or as a personal contribution, of $625 per month (which is equivalent to making an after-tax contribution of $400 per month after factoring in the tax deduction she will earn).

Super Contributions Optimiser summary

Source: MoneySmart Super Contributions Optimiser

By making a personal pre-tax contribution of $625 a month, Deb would increase her annual income in retirement to $40,344 per year, including a part Age Pension. This is right on her target income of $40,346 per year.

Revised estimated annual retirement income until age 90 (after making additional contributions)

Source: MoneySmart Retirement Planner

Deb would like to have a bit more money to spend in her early retirement years while she is still fit and healthy enough to travel around Australia to visit family and friends, so she adjusts the calculator to see how much income she would have if she allowed her super to run out by age 85, close to the average lifespan for Australians, rather than 90.

That would give her an estimated annual retirement income of $44,465. Not only is this above her target, but it’s also not far short of ASFA’s estimated income for a comfortable retirement lifestyle for a single person of $46,494 per year. The downside is that if she lives beyond age 85, she would be totally dependent on the Age Pension.

Revised estimated annual retirement income until age 85 (after making additional contributions)

Source: MoneySmart Retirement Planner

Deb will also have more room to add to her super when she is no longer making mortgage repayments, so perhaps her super will stretch to 90 after all.

After going through this exercise Deb is more confident that she won’t have to compromise her current standard of living in retirement. In fact, depending how much extra she can save when her mortgage is repaid, she could end up slightly better off than she is now.