In this guide
If you are ready to explore whether your super and other savings are on track for a comfortable retirement in the not-too-distant future, then your super fund’s retirement planning calculator is a good place to start.
These days, many super funds offer online calculators to help you work out your estimated retirement balance, the annual income it could provide including any Age Pension you may be eligible for, and when your super will run out.
This sort of information can be useful when you are doing your initial retirement planning, but the accuracy of these calculators is only as good as the information you put into them and the assumptions they use.
So how reliable are they?
Retirement projections vary widely
An extensive report by Super Consumers Australia (SCA) reviewed 22 super fund retirement calculators and found a disturbingly wide variation in their retirement balance projections, retirement income estimates and the age at which super runs out.
The September 2024 report reviewed websites of the largest 50 super funds (by number of members), but found only 25 had a publicly available calculator. Of these, three had the same generic calculator so it was only included once. Telstra Super was also excluded because its calculator uses a stochastic model which isn’t directly comparable to other models used (see note below).
A hypothetical scenario was then used to put the final 22 calculators through their paces – a single 50-year-old female with $55,000 annual income and a $95,000 super balance. She is a homeowner and plans to retire at age 67.
Key findings were:
- A large (42%) variation in projected retirement balance at 67, from $184,251 (Diversa) to $260,883 (Mercer), due to different assumptions about fees and returns
- An even larger variation (74%) in annual retirement income estimates, from $29,928 per year (Colonial First State) to $52,000 per year (Mercer and four other funds that use its calculator).
Strangely, there was no clear pattern linking low and higher balances with low and higher retirement incomes.
But a clear pattern does exist when it comes to when your money is likely to run out. Generally, the higher the annual retirement income, the sooner it is projected to run out and vice versa. Funds using the Mercer calculator all estimated the hypothetical female’s super would run out before age 92 (and as early as age 77, just 10 years after she retires). At the other end of the scale, 12 funds estimated her super would last until age 100+.
Note – What is a stochastic calculator?
Most retirement tools, such as the calculators in the SCA study, use fixed assumptions about investment returns or how long you will live, based on averages, to determine results.
This contrasts with modern ‘stochastic’ calculators which use probability, so users no longer need to assume the unknowable. Instead, stochastic calculators do this for you by testing thousands of scenarios for future market returns and people’s lifespans – all weighted by the probability that each scenario may occur.
The scenarios tested take into account your age, health status and the investment profile of your retirement savings (superannuation and non-superannuation savings) as well as current market conditions.
Stochastic models determine a probability of being able to achieve a certain retirement income with an appropriate degree of confidence, so people can make informed trade-offs that take uncertainty into account. A simple example of this might be that a retiree can spend $70,000 per year with a 50% chance of not running out of money in old age or spend $50,000 per year and have 95% chance of not running out (even if markets perform poorly, living costs increase or they live longer than expected).
Read more about stochastic calculators.
Watch our video demonstrations of TelstraSuper’s Lifetime Income Calculator and Retirement Lifestyle Planner, both of which use stochastic modelling.
Before you start using an online calculator
As the SCA study shows, different calculators can give you wildly different retirement outcomes even when you plug in the same basic information about yourself and your financial position.
The difference is in the arbitrary assumptions most calculators make about anything from future investment returns to your retirement spending needs and your lifespan.
That puts the onus on you to read the assumptions and to understand the method used to calculate your estimated retirement income. That’s a lot to expect if you are simply after a quick back of envelope calculation, but it’s worth a bit of extra legwork in the long run.
Otherwise, you risk being overconfident about your estimated retirement income and running out of money too early. Alternatively, you may be overly fearful that your money won’t last the distance, so you decide to continue working longer than necessary or live so frugally in retirement your kids are the main beneficiaries of your super savings.
The following tips will help you understand how retirement calculators work and how to select one that’s appropriate for your personal situation.
Need to know
In July 2022, ASIC released new regulatory guidelines covering how superannuation calculators and retirement estimates are created by super funds.
These rules are designed to ensure super fund trustees all follow the same framework for many of the assumptions they use in their calculators.
The rules require funds to use a default inflation rate set by ASIC each year and to base their investment returns on ‘reasonable assumptions’, not what you actually receive in your account. They also automatically assume you will retire at age 67, with a fixed amount of income from your super savings being paid to you every year for the following 25 years.
The rules also require the calculator to assume your super contributions remain the same over your working life and the tax and super rules do not change before you retire. Several default assumptions are also made about your Age Pension eligibility.
Some tools allow you to change some of these assumptions to match your personal circumstances, but it depends on the individual calculator.
Learn more about your retirement estimate.
