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Recently some industry experts were quoted in the media as saying that Australians need to save a minimum of $1 million in order to retire comfortably. But today the Australian Institute of Superannuation Trustees (AIST) and Australian Super released a report in response to these claims titled, ‘Busting The $1 Million Retirement Myth.’
The report has been produced, according to AIST’s Chief Executive Ian Silk, in response “to some concerning feedback from members who are worried and despondent as a result of reading a flurry of reports that they will need more than $1 million in the account to retire.”
The report focuses heavily on the age pension and the fact that many Australians combine pension payments with super to fund their retirement.
So where do these conflicting opinions leave average Australians who are keen to set themselves up for a comfortable retirement?
Firstly, I always urge people to aim for a self-funded retirement. We simply cannot rely on the aged pension being accessible for everyone forever. So when planning for a self-funded retirement what sort of things should you be considering?
Here are my top tips:
- Superannuation is individual to everyone and to plan for it you really need to think about the sort of person you are. Are you the frugal type that exists on $300 a week? Or do you spend $1000 a week and love to go on holidays to Europe every year? What ever the case, it’s important to sit down with your financial planner and discuss YOUR individual situation and also discuss on your Retirement Planning.
- When would you like to retire? Do you want to keep working until you are 70 or do you want to retire at 50? This too, will dictate how much super you will realistically need.
- Don’t leave thinking about your super too late. Typically people tend to focus on paying off their mortgage first and then start thinking about their super in their 50’s. I say that you need to be doing both from the very beginning. Make your own salary sacrificed contributions AND pay off your mortgage with any money left-over.
- When super was first introduced, the actuaries recommended 15% as the mandatory contribution and yet we’re still at 9.5% over 20 years later. Everyone should be trying to contribute at least 15% of their income to super.”
Some food for thought:
If someone 20 years old on a $55K per year salary is putting away the required amount of super from now until they are 65 in a balanced super fund, they’ll have saved $310,955 by the time they retire, giving them an income of $17,601 per year until they’re 100 years old. In comparison, if that same person commits to salary sacrificing an extra 5%, they’ll have $444,309 and an income of around $25K per year until they’re 100 years old – a significant difference!