Superannuation strategies

Savvy super fund members know they may not have enough

January 2010
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As we enter a new decade, it seems the question of superannuation adequacy is top of mind for most Australians when it comes to their retirement savings. Despite the upheaval and uncertainty brought about by the global financial crisis, fund members have not panicked and remain largely positive about their super funds, according to ASFA’s annual research into community attitudes to superannuation1. The research, conducted by Auspoll and released at the end of the year, showed that having enough in retirement was one of the biggest concerns of those surveyed; rating above issues such as mortgage payments, job loss, health care and education expenses. Over two thirds of respondents said they were worried the current superannuation guarantee amount of nine per cent would not fund an adequate standard of living in retirement. So how much super is enough? Exactly how much super you will need in retirement is a difficult question to answer, because everyone has different needs and ideas about the type of retirement they aspire to.

Not only does the amount of money you need depend on your lifestyle choices, but it also depends on whether you have any other potential income options in retirement (such as investments or part time work) which will supplement your super.

As a general guide, many retirees aim to retire with an income based on 50-70 per cent of their pre-retirement salary. So if you're earning $50,000 each year now, you'll need around $30,000 each year in retirement. The rationale for this amount is that you will have fewer expenses in retirement (assuming you have paid off your mortgage) and therefore may be able to manage on a smaller income.

Although this figure is a good starting point, the AFSA research¹ showed that 88 per cent of respondents stated they want more than $30,000 a year to support the lifestyle they desire.

And of course, the earlier you retire, the longer you will have to live on your savings - you might have to support yourself for more than 30 years. To roughly work out how much you may need to save to fund your desired retirement income (and you are retiring now), multiply the annual income you want to retire at age 55, by 19, at age 60 , by 17 and at age 65, by 14².

So if you retire now at age 60 and require $30,000 a year in retirement income, you will need estimated savings of $30,000 x 17 = $510,000.

What if I don’t have enough?

If you’re relying solely on the money your employer puts into your super, it may be true that your super benefit lump sum won’t be enough to maintain your current lifestyle when you finish working.

There are many strategies that can be implemented to help boost retirement savings and potentially deliver the retirement lifestyle aspired to.

Contributing more to super - either through salary sacrifice or by making personal after tax contributions - can potentially boost super savings in retirement.

Learn more...

To find out more, go to the Forms and Publications page and download the Plum Salary sacrifice strategy guide and the Plum Personal after tax contributions strategy guide.

Whether you are close to retirement or just starting to save, it's never too late (or too early) to make positive changes that can set you on the path to a financially secure retirement.

Next steps

For more information about the these and other strategies to help you build your retirement savings, visit www.plum.com.au or contact a Plum Member Services Consultant on 1300 55 7586, any business day, 8.00am to 6.00pm, Australian Eastern Standard Time (AEST).

¹ Community Attitudes to Superannuation, research report prepared for the Association of Superannuation Funds of Australia, November 2009 - www.superannuation.asn.au/mr091111-2/default.aspx
² www.fido.gov.au Retiring: how much money will you need? Assuming current market rates for buying a retirement income (an allocated pension), with your retirement savings earning 6% after costs.