Superannuation is one of the most tax-effective ways of saving for retirement. But it is important to ensure that you save enough money to live comfortably. For most people, after their home, superannuation will be the largest asset they have once they finish work.
I am sure you have read numerous articles about how the compulsory employer superannuation contributions of 9% will not be enough to fund a comfortable retirement, while this is certainly true, the real question is how much do you really need?
The main points to consider include:
- The lifestyle you would like to have in retirement
- How long you need your savings to last in retirement
Most people in retirement want to maintain a lifestyle as close as possible to the lifestyle they are enjoying during their working lives. Ideally, by retirement, the home will be paid off and the children will be financially independent. By preparing a budget based on current expenses, less mortgage payments, assistance to dependents and any work related expenses, you should have a rough idea of what your lifestyle costs will be in retirement.
The table below illustrates what percentage of your salary you need to invest into your superannuation, depending upon what percentage of your current income you want to receive in retirement.
For example, assuming you have no major assets outside of super, if you plan to retire in 15 years time, you will need to invest 30% of your current salary until retirement, if you wish to receive 50% of your current salary as income in retirement.
|
Years to retirement |
Income wanted at retirement as a % of final salary |
|||
|
|
40% |
50% |
60% |
70% |
|
40 |
6% |
8% |
9% |
11% |
|
35 |
7% |
9% |
11% |
14% |
|
30 |
10% |
12% |
14% |
18% |
|
25 |
12% |
16% |
19% |
23% |
|
20 |
17% |
21% |
25% |
32% |
|
15 |
24% |
30% |
37% |
46% |
|
10 |
40% |
49% |
59% |
74% |
|
5 |
85% |
107% |
128% |
160% |
Note: Assumes net investment returns of 3% above salary growth, and life expectancy of
14 years after retirement
The table below shows the savings you need to have accumulated at retirement to maintain an income stream of $40,000 per year.
|
Retirement Age |
Estimate Savings Required |
|
Age 55 |
$ 760,000 |
|
Age 60 |
$ 680,000 |
|
Age 65 |
$ 560,000 |
To maintain a retirement income of $60,000 per year, you will require the following estimated savings.
|
Retirement Age |
Estimate Savings Required |
|
Age 55 |
$ 1,140,000 |
|
Age 60 |
$ 1,020,000 |
|
Age 65 |
$ 840,000 |
Clearly, the earlier you retire the more money you will require for your retirement. Likewise, the higher your standard of living the more investment assets you will need to accumulate prior to your retirement.
Quinn Financial Planning specialises in providing unbiased superannuation investment and taxation advice on all superannuation funds, including self managed super funds. We have the experience, expertise, and flexibility to ensure that you have in place the appropriate investments to help you reach your retirement goals.
If you would like to discuss your superannuation or any aspects of financial planning, please contact The Quinn Group by submitting an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 and we would be pleased to assist you.
This is an absolutely great table. I’ve always wondered what the right amount is. I am currently putting 30% of my gross salary into superannuation. I’d put in more but I’d have excess contribution issues. 30% should be sufficient for me as I am only 23. That said I plan on retiring early, living until I am 120 and having some money left over for the kids.
I think the only way I can pull this off is by by accumulating enough superannuation, so that I can live off of the income alone, without touching the capital.