How to prepare your super to take flight
If you’re preparing to come back to work or have recently returned, here are a couple of quick things you can do to dust off your super account and make sure it’s in good shape.
The balance you need to achieve a comfortable retirement - based on your income
There are a lot of questions people have about their super, but by far the one we hear most often is,” How much super do I need to retire?” followed closely by “How am I going to get there?”
As we always say, the answer to the first question very much depends on your own personal situation and circumstances, in particular your plans for your life after work. However, there are a few figures we can use for guidance.
As a guide, the Association of Superfunds of Australia (ASFA)’s Retirement Standard estimates that a couple will need a lump sum of $690,000 in combined super savings at retirement to enjoy a ‘comfortable’ retirement.
A single person, meanwhile, will need a lump sum of $595,000 in super savings. A ‘modest’ lifestyle, on the other hand, will require a lump sum of $100,000 in super savings at retirement.
The Retirement Standard assumes, for both a modest and comfortable lifestyle, that the retirees own their own home outright and are relatively healthy. It also assumes that the retiree, or retirees, will draw down all their capital and eventually receive a part Age Pension.
So that leads to the second question: how are you going to get to those figures?
What’s the difference between a comfortable retirement and a modest retirement?
ASFA defines a ‘comfortable’ retirement as one that “enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities”.
A comfortable retirement will also enable this retiree to have a good standard of living by allowing them to buy things like good clothes, a reasonable car, private health insurance, and household goods.
A modest retirement lifestyle, meanwhile, is considered better than the Age Pension, but still only allows for the basics.
Of course, if you want to travel the world in a private jet in retirement, the balance you’ll need will likely be a bit different.
The balance you need for your age based on your salary
ASFA has a guide showing the balance someone would need at different ages to reach the $595,000 in super savings that a single retiree needs at age 67 to enjoy a comfortable retirement, based on a wage of $65,000 and of $90,000.
As ASFA explains, a person on a lower salary will receive a lower amount of compulsory Superannuation Guarantee contributions from their employer, as 11% of their $65,000 salary – $7,150 – is lower than the $9,900 someone with a salary of $90,000 would receive.
This means that someone on a lower salary will need to start saving earlier to offset the lower amount of Superannuation Guarantee contributions they’ll receive from their employer, and give their account more time to make the most out of compound interest:
Balanced needed at various ages to achieve ASFA Comfortable Standard
| Age | Required balance $65,000 wage ($) | Required balance $90,000 wage ($) |
|---|---|---|
| 22 | 8,000 | 0 |
| 25 | 29,000 | 0 |
| 30 | 68,000 | 8,000 |
| 35 | 112,000 | 57,000 |
| 40 | 162,000 | 113,000 |
| 45 | 220,000 | 176,000 |
| 50 | 284,000 | 249,000 |
| 55 | 360,000 | 332,000 |
| 60 | 444,000 | 425,000 |
| 65 | 542,000 | 535,000 |
| 66 | 565,000 | 560,000 |
How does this compare to reality?
As we know, what we should have or do doesn’t always compare to reality, and so it goes for our super balances – especially when the amounts quoted by ASFA do seem paradoxical: how can someone on a lower salary grow a balance larger than someone earning more?
More of these questions emerge as we look at real balances today. For example, statistics show that the balances of Australians currently aged between 60 and 67 sit well below the amounts required for a comfortable retirement.
However, this could be partly attributed to the fact that the majority of Australians at retirement age or close to it today have only benefited from compulsory superannuation for 30 years, with many years of these contributions at much lower rates than the 11% we enjoy today – for example, when it first became compulsory for employers to pay Superannuation Guarantee contributions in 1992, they had to contribute just 3-4% of an employee’s salary. This rate has grown over the last 30 years, and is scheduled to increase at least twice more: by 0.5% on 1 July 2024 and a further 0.5% on 1 July 2025, to hit 12%.
On the other hand, ASFA explains that younger Australians who will receive Superannuation Guarantee contributions for the great bulk of their working life at the rate of 12% of wages will be much more likely to be on track to reach ASFA Comfortable. By 2050, ASFA estimates that around 50% of Australians will be able to retire at the ASFA Comfortable level.
Data from the Australian Taxation Office (ATO) can show us where people are today:
| Age | Men (average) | Men (median) | Women (average) | Women (median) |
|---|---|---|---|---|
| 18 - 24 | $8,148 | $4,198 | $7,740 | $4,045 |
| 25 - 29 | $25,981 | $17,243 | $24,740 | $17,381 |
| 30 to 34 | $56,344 | $41,849 | $51,400 | $38,681 |
| 35 to 39 | $95,937 | $74,062 | $86,140 | $65,417 |
| 40 to 44 | $139,431 | $106,771 | $123,993 | $91,590 |
| 45 to 49 | $190,716 | $139,850 | $166,937 | $116,886 |
| 50 to 54 | $246,955 | $167,002 | $215,115 | $137,930 |
| 55 to 59 | $316,457 | $191,263 | $277,327 | $158,462 |
| 60 to 64 | $402,838 | $211,996 | $361,539 | $183,524 |
| 65 to 69 | $453,075 | $213,986 | $428,738 | $207,540 |
| 70 - 74 | $509,059 | $216,564 | $481,483 | $214,431 |
| 75 and over | $507,556 | $174,179 | $475,422 | $171,716 |
What’s the difference between the average and median?
The average balance is calculated by adding up all the balances in a particular group, and then dividing it by the number of accounts in that group. The average comes out higher because it’s more easily skewed by outliers – that is, individuals with very high balances that may not necessarily be the norm for that group. The median, on the other hand, is the figure which sits in the middle of the data set.
How can you boost your balance on a lower salary?
While making voluntary contributions obviously will help boost your balance, the reality is that it can be hard to put money aside for decades down the line when the cost of living keeps rising today.
However, there are a few things other things you can do to help grow your balance:
- Check for lost super and combine your super if you have multiple accounts – this can reduce the total fees you pay and make sure all your super is invested and working hard for you
- Review your investment options – The way your super is invested plays perhaps the largest role in how your balance grows, so it’s important to make sure that your super is invested aligns with your needs
- Check your insurance cover – your super account may have come with automatic insurance cover, with premiums deducted from your account balance. Because this is automatic cover, it’s not tailored to your specific needs, so it’s important to check your level of cover to make sure you’re paying for the level of cover you need
- Contribute when you can – thanks to the magic of compound interest and time, every dollar in your super counts, so even a spare $10 here and there when you can afford it can make a difference to your balance over the long term
A Super Adviser can help – you can book a one-on-one appointment with a member of the team here.
We're here to help
If you need help with making a decision about your super, you can get simple advice over the phone or face to face. It’s included as a part of your membership so there’s no extra cost.