A rough guide to how much super you'll need in retirement

MANY Australians are in for a shock when they retire, as there may well be a significant gap between their expectations and reality. 

A rule of thumb is that your retirement capital should be around 15 times your expected expenditure.  For example, if you feel you will spend $50,000 a year in retirement, you will need $700,000 in your portfolio. 

This may seem a huge amount of money, but don't despair - the first step in solving a problem is to define it.  For starters, our generous social security system will be there as a backup.  A couple of pensionable age who retired now with $150,000 in financial assets should qualify for around $33,000 a year in age pension.

If their expenditure goal in retirement was $50,000 a year, the additional amount needed drops to $17,000 a year when the age pension is taken into account.  Using the 15 times rule, this means they need only $255,000 in super to get them through. 

Bob is 50 and earns $90,000 a year, his partner does not work but could find a job if necessary.  Their main assets are a home worth $700,000 which still has a mortgage of $150,000, and his work superannuation currently worth $200,000.  If inflation is 3% per annum, they will need $82,500 a year when he is 65.  Using the 15 times rule, he will need to accumulate superannuation of $1.24 million by then.

That sounds a vast sum, but we are talking 15 years into the future.  If his income rises by 4% per annum, and his super earns 8% per annum, there should be $894,000 in super by the time he is 65.  They will be $346,000 short of their target, and unlikely to qualify for any government assistance.

The problem could be solved by Bob working longer, or encouraging his partner to get a part time job, or by simply voluntarily increasing his superannuation contributions by starting a salary sacrifice program.  One option is to salary sacrifice $1168 a month.  After deduction of the 15% contributions tax, this should provide the extra $346,000 needed if his fund earns 8%.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.

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