Can you retire comfortably with $300,000 in super?

Can you retire comfortably with $300,000?

How much do you need for a comfortable retirement? Depending on where you look you’ll get conflicting numbers.

Some headlines put the magic number at $1 million in super.

The Association of Super Funds of Australia (ASFA) claims it’s $640,000 for couples and $545,000 for singles.

The reality is most Australians retire with far less in super. Indeed, the average super balance for Australians aged 60-64 is just over $300,000.

That may be enough. Here’s three reasons why.

1. Super supplements the Age Pension

Most people who retire in Australia do so on a combination of their super and the Age Pension.

Which means even a relatively modest super balance can help top up the Government’s Age Pension benefit.

Let’s look at an example: A single retiree on the full Age Pension currently receives approximately $24,500 per year, which works out to about $472 a week. That’s well short of ASFA's comfortable retirement income of $840 per week. But those numbers don’t tell the whole story.

By drawing down some of their super, that same person can top up their Age Pension payments.

Let’s assume they have $300,000 in super and draw down the minimum 4% annually*. That comes to $12,000 per year, which works out to about $230 a week. When combined with the Age Pension that’s a lot closer to ASFA’s comfortable retirement standard.

2. Your super balance continues to grow in retirement

Another reason you may be able to retire on a modest super balance is continued investment returns. In other words, your super balance can continue to benefit from investment returns in retirement.

If you had $300,000 in super and were invested in our Balanced pension option, you would have seen average returns of 8.6% per annum over the last 10 years^. That’s $25,800 per year (before fees). Those returns can potentially be drawn down and used to help top-up the Age Pension while maintaining your balance.

The above scenario is subject to a number of caveats, including the Centrelink income test, positive investment returns, life expectancy, and inflation, but it shows how your money may continue to benefit from investment returns, even in retirement.

3. Your super drawdown is tax free

The other thing to keep in mind is that the income you draw down from your super in retirement is tax free, as long as you’re aged 60 or older. No income tax means your money can go a lot further.

The rule of thumb is that you’ll need two-thirds of your working income to maintain that same income in retirement. For most Australian retirees, that number is achieved via a combination of super savings and Age Pension benefits.

The Australian Government’s MoneySmart calculator is a useful tool for comparing income and take-home pay. It can show you how much your current income is taxed, which can help you figure out an appropriate (tax free) retirement income level.

The elephant in the room

Most Australians retire on a combination of the Age Pension and their super. But that doesn’t mean everyone qualifies for Age Pension payments.

If your income or assets exceed certain limits your pension payments may be reduced, or you may not be eligible at all.

Income includes money from part-time work, investments, annuities, etc. Your assets may be calculated based on investment properties, business assets, etc.

You can learn more about the impact of income and assets on Age Pension entitlements via the Australian Government’s MoneySmart website

Speak to a professional

A financial planner can help you better understand your retirement options, and how a mix of super and Age Pension entitlements can work together.

Which means even a modest super balance can go a long way towards a more comfortable retirement.

Speak to a financial planner

Professional advice can help you chart a course for success. 

* A minimum drawdown rate only applies if you have an account-based pension (ABP). Minimum drawdown rates for ABP were halved in 2020-21 in response to COVID-19, e.g. for a member aged 65-74 the temporary minimum drawdown rate is 2%, not 4%. this was extended for the 2021/22 financial year. 

More details are available here

^As at 30 September 2020

Any figures quoted are correct at the time of writing but may be subject to change.

Authorised by Togethr Trustees Pty Ltd (ABN 64 006 964 049; AFSL 246383) ('Trustee') the trustee of the Equipsuper Superannuation Fund (ABN 33 813 823 017). Catholic Super is a division of the Equipsuper Superannuation Fund (ABN 33 813 823 017). Financial advice services may be provided to members by the trustee's related entity. 

Togethr Financial Planning Pty Ltd (ABN 84 124 491 078; AFSL 455010). The information contained herein is general information only. It has been prepared without taking into account your personal investment objectives, financial situation, or needs. It is not intended to be, and should not be, construed in any way as investment, legal or financial advice. Please consider your personal position, objectives, and requirements before taking any action. Past performance is not a reliable indicator of future performance.

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