Retirement planning case study: Couple aged 47 and 48

• Chris (47) earns $180,000 per year and has $430,000 in super
• Lisa (48) earns $80,000 per year and has $220,000 in super
• They have one daughter at university and are close to paying off their mortgage
• They want to know if they are on track to retire when Chris turns 60

Chris and Lisa currently enjoy a more than comfortable standard of living, with combined after-tax income of $188,166 per year. They hope to continue their current lifestyle in retirement. As they will no longer have mortgage or super payments once they retire, they are aiming for two thirds (66%) of their current after-tax income, or around $125,000.

Up until now they have focused on paying down their mortgage. But now that they are getting closer to retirement and their daughter will soon be independent, they are considering paying more attention to their super.

According to MoneySmart’s Retirement Planner calculator, if they keep on as they are now, making no changes to their strategy or adding to their investments, they are on track for Chris to retire at 60 and Lisa at 61 with a combined super balance of $1,273,152 ($856,302 + $416,849).

This is estimated to produce an annual combined retirement income of $67,372 until Chris is age 90, or $77,897 until he is age 85.

Initial estimated annual retirement income until age 85

Source: MoneySmart Retirement Planner

This is not what they hoped for.

Given they will soon have more disposable income when the mortgage is paid off and their daughter is independent, they decide to improve their retirement outlook by salary sacrificing or making personal super contributions up to their individual concessional caps of $27,500.

Chris’ employer currently contributes Superannuation Guarantee payments of $18,900 per year while Lisa’s employer contributes $8,400. That means Chris could contribute an additional $8,600 per year and Lisa could contribute $19,100, earning them both a handy tax deduction in the process.

They use MoneySmart’s Super Contributions calculator to estimate this will reduce their net pay to $160,470 per year ($27,696 per year less), but decide that this is a sacrifice they can afford to make, particularly since it will add an additional $33,571 in contributions after tax to their super each year.

Source: MoneySmart Super Contributions Optimiser

This strategy would take their estimated combined super balance to $1,594,759 and provide combined income of $78,318 per year until Chris is age 90, or $88,815 per year until he is 85.

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

Source: MoneySmart Retirement Planner

While this is enough to provide a comfortable retirement by community standards, it’s still well short of Chris and Lisa’s target income of $125,000. Luckily they are still relatively young so there is time to improve their retirement outlook either by saving more or retiring later.

If they delay retirement until Chris turns 65, their combined super balance will increase to an estimated $2,010,801 providing income of $104,360 per year until Chris is age 90, or $124,254 to age 85. This is close to their goal and perhaps a more realistic plan.

Revised estimated annual retirement income until age 85 (after making additional contributions and delaying retirement until age 65)

Source: MoneySmart Retirement Planner

At some point they may also consider downsizing their large family home and putting the proceeds into their super.

Both Chris and Lisa expect to receive an inheritance from their parents at some point, but there is no way of knowing when that will be so it can’t be relied on to provide retirement income when they need it. They do, however, agree to make the most of any future wage increases or windfalls they may receive to add to their retirement savings.