How much superannuation should you have to retire In Australia? It’s probably a lot less you think

How much do you need to save for a comfortable retirement? It’s a big ask, and you’ll often hear dire warnings that you don’t have enough.

But for most Australians it’s a lot less than you might think. Australians tend to overestimate how much they will need in retirement.

Retirees have no work-related expenses and have more time to do things for themselves.

And retirees, especially retirees, benefit from discounts on municipal rates, electricity, medicines and other benefits worth thousands of dollars a year.

While housing is becoming less and less affordable, most retirees own their own home and have it paid off by the time they retire.

Home-owning Australians spend an average of 20 to 25 percent of their income on housing while they work, largely to pay the mortgage.

But among retired homeowners that is only 5 percent, because they only have smaller things to worry about, such as rates and insurance.

And whatever income you need at the start of your retirement, it usually decreases as you get older.

Retirees tend to spend 15 to 20 percent less at age 90 than at age 70, after adjusting for inflation, as their health deteriorates and their discretionary spending declines.

Most of their healthcare and elderly care costs are covered by the government.

So how much pension do you need?

Consumer group Super Consumers Australia has examined the figures on retirees’ spending and presented three robust ‘budget standards’:

• A ‘low’ standard (i.e. enough for someone who wants to spend more than 30 percent of retirees)
• An ‘average’ standard (more than 50 percent of retirees spend this), and
• A ‘high’ standard (over 70 percent)

Crucially, these estimates explain the important role of the age pension in the retirement income of many Australians. The maximum age pension is now A$30,000 per year for singles and $45,000 per year for couples.

To meet Super Consumers Australia’s ‘average’ superannuation standard, a homeowner only needs to have $279,000 in super savings at age 65 to be able to spend $41,000 a year. A couple only needs $371,000 in super money to spend $60,000 a year.

To meet their ‘low’ standard – which still allows you to spend more than 30 per cent of retirees – single Australians need $76,000 in super money at retirement, and couples need $95,000 (while also qualifying for a full age pension of $30,000 per year).

Provided you own your own home (more on that later).

Ignore the super lobby’s estimates

Australians should ignore superannuation standards set by super-lobby group the Association of Superannuation Funds of Australia.

Their “comfortable” standard assumes retirees need an annual income of $52,085 as a single person, and $73,337 as a couple. This would require a super balance of $595,000 for a single person, and $690,000 for a couple.

But this is a standard of living that most Australians do not have before retirement.

It’s higher than what 80 percent of single working Australians and 70 percent of couples spend today.

For most Australians, saving enough to meet the super lobby’s ‘comfortable’ standard in retirement may only be because they don’t feel comfortable during their working lives.

Most Australians are on their way to a comfortable retirement

The good news is that most Australians are on track.

The Federal Government’s Retirement Income Review 2020 concludes that most future Australian retirees can expect an adequate pension, replacing a more than reasonable portion of their early retirement – ​​more than the 65-75 percent benchmark nominated by the review .

Even most Australians who work part-time or have a broken work history will reach this benchmark.

Rising mortgage debt does not change this story

Most retirees today feel more financially comfortable than younger Australians. And they usually have enough money to maintain the same or higher standard of living in retirement than when they were working.

More Australians are retiring with mortgage debt, with around 13 per cent of over-65s having a mortgage in 2019-2020, up from 4 per cent in 2002-03.

But the government’s retirement income review found that most retirees who used $100,000 of their super money to pay off the mortgage when they retire would still have an adequate retirement income.

This is partly because many would qualify for a higher age pension after using a large chunk of super to pay off the mortgage.

And pensioners can get a loan through the government’s Home Equity Access Scheme to take equity out of their home up to a maximum value of 150 per cent of the Age Pension, or $45,000 a year, regardless of how much Age Pension you qualify for.

The outstanding debt accrues with interest, which the government gets back when the property is sold, or from the borrower’s estate when he dies, reducing the size of the inheritance that goes to the children.

But what about tenants?

One group of Australians is not on track for a comfortable retirement: those who don’t own a home and have to continue paying rent after retirement.

Nearly half of retired renters today live in poverty.

Most Australians approaching retirement own their own home today, but even fewer will in the future.

Of the poorest 40 percent of 45-54 year olds, only 53 percent currently own a home, compared to 71 percent forty years ago.

But a single pensioner renting an apartment for $330 a week – cheaper than 80 per cent of one-bedroom apartments in all capital cities – would need an extra $200,000 in super money, in addition to Commonwealth Rent Assistance (according to the Money Smart Retirement government program). planner).

This is why increasing Commonwealth Rent Assistance to help retirees keep a roof over their heads should be an urgent priority for the federal government.

Australians have been told for decades that they are not saving enough for retirement. But the vast majority of retirees today and in the future are likely to be financially comfortable.