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Can you afford to retire?

Superannuation  |  7/08/2017  |   5 min read

You’ve probably seen the sensationalist headlines. You need $1 million to retire. You’ll be working into your 70s. Your retirement will consist of dry toast and instant coffee. If the papers are to be believed, most Australians will be living in poverty by the time they hit retirement, but the reality is quite different.

Myth 1. You retirement income is the same as your working income

According to the ASFA (Association of Super Funds of Australia) standard, a retired couple needs at least $60,000 in annual income to maintain a comfortable lifestyle. If you’re a couple who used to earn $78,000 each (the national average), sharing $60,000 between the two of you can seem quite low.

But comparing those incomes side-by-side doesn’t make a whole lot of sense, and here’s why.

  • Income tax

When you factor in income tax, those $78,000 salaries are actually closer to $61,000 in take home wages. That immediately bridges some of the income gap.

  • Expenditure

When it comes to budgets, your expenses (i.e. what you spend), is just as important as what you earn. If you’ve paid off your mortgage by the time you retire that’s going to eliminate a major outgoing cost. People also underestimate the cost of actually going to work. Between the travel costs, parking expenses, lunches, coffees, etc., you’re could be spending several thousands dollars each year.

The point is, you shouldn’t look at your annual income, and assume that’s how much you’ll need in retirement. A more effective way to gauge your retirement needs is to look at what you actually spend – not how much you make.

Myth 2. The Age Pension is your only source of income

Even if you rely on the Age Pension in retirement, you can use modest superannuation savings to help top up your payments. A recent study by AIST showed that a super balance of just $150,000 “delivers an additional $163 week on top of the Age Pension – a 38 per cent increase.”

The current Age Pension for a single person is $23,096 ($445 a week). Based on the above example, $150,000 in super will boost that retiree’s annual income to just short of $32,000 a year (or $608 a week).

That’s still short of ASFA’s recommendation for a comfortable income, but delivers almost $10,000 extra income per year. If your superannuation savings are closer to $300,000, that can add an extra $20,000 in income on top of your Age Pension, and place you in ASFA’s comfortable retirement bracket.

Myth 3. You need $1 million to retire.

As the two examples above demonstrate, superannuation and retirement income can’t be reduced to a single set of numbers. The reality is everyone has different expectations, priorities, and expenses.

That brings us back to one of the most common misconceptions about retirement, and the idea that you need $1 million to live comfortably. As former AIST CEO Tom Garcia explained in the ‘Busting the $1 Million Retirement Myth’ report, “It’s time to get real about super and ensure all Australians have a far better understanding of the sort of income they can expect in retirement.”

“Most people approaching retirement will draw an income that is a combination of both super and the Age Pension. The key point for people to appreciate is that even relatively modest super balances can make a meaningful contribution to an adequate retirement income when combined with the Age Pension. So rather than despair, workers with $100,000, or even $50,000 in their super accounts should take heart. The super savings they’ve accumulated give them options they might not realise.”

 

Speak to an Equip financial planner about your retirement income, and ways to increase your final balance. Book an appointment online or call 1800 065 753.

 

This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the relevant Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383. MySuper Authorisation Numbers 33813823017672 and 33813823017518  (‘Equip’, ‘the Fund’ and ‘the Equip Rio Tinto Fund’).

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