Why $200,000 super can help you have a decent retirement lifestyle
If your superannuation balance is sitting somewhere around $200,000, you’re very normal!
Aussie males retiring between the ages of 60 and 64 typically finish work with $292,500 saved up, while women leave with $138,150.
That makes for an average retirement balance of $214,121.*
Galaxy research conducted for Industry SuperFunds found, however, that just 16 per cent of workers believe $200,000 in super savings is enough for money worry-free retirement.
Instead, people who expected to have $200,000 or less in super at retirement had some pretty pessimistic projections; they expected to work past age 65 because they needed the cash for everyday expenses, to have to live a poorer lifestyle, or to simply go without.
That outlook, though, may be overly negative.
Modelling by Industry SuperFunds shows that a super balance of $200,000 can provide a healthy supplement to the Age Pension, taking the recipient into the zone where they can easily afford what’s dubbed a ‘modest’ retirement lifestyle – a considerable improvement on the deprivation existence many seem to anticipate.**
Meanwhile, if investment returns are healthy, as they draw an income, their super balance can continue to grow.
This is possible through an account-based pension.
Put simply, at retirement part of your super balance is moved into an account from which you draw an income. The rest remains invested and, with healthy investment returns, can continue to grow until you need it.
It’s possible to draw an income from super and still receive a reasonable part-pension, but it’s important to understand the rules that dictate the entitlement.
Singles can earn a maximum of almost $51,000 before losing the Age Pension entirely, while couples can early almost $78,000. This is because a single person can have an income of up to almost $4,370 and a couple $7,800 before their pension begins reducing by 50 cents for every dollar of income. (Pension applicants are also subject to an asset test.)
Industry SuperFunds’ modelling shows that a retiree could withdraw an annual income of between $9,500 and just over $12,000 each year from their super, while remaining entitled to a part-pension of as much as $17,000, creating a total income of almost $30,000. **
That puts the retiree well ahead of the $24,000 they need for a ‘modest’ lifestyle, according to the Australian Super Funds Association (ASFA).***
According to ASFA, that kind of lifestyle involves a couple of short breaks each year, occasional dining out and leisure activities, the ability to cover home repairs, and to afford private health cover.
And there are some moves savers both pre- and post-retirement can make if they’re still concerned $200,000 in super won’t be sufficient for their retirement needs.
Average earners could consider pre-retirement salary sacrificing to make additional contributions to their balance, taking advantage of their the money being taxed at 15 per cent rather than at the marginal rate.**** It’s possible to make up $25,000 in these before-tax contributions each financial year.
A transition-to-retirement pension is another way of accessing super but continuing to work at least part-time so the balance has more time to grow. Again, there are advantages to doing so, because the portion of income drawn from super is generally tax-free.*****
Retirees, meanwhile, are permitted to make super contributions until they turn 75, so any windfall or lump sum can be used to increase their super balance. To do so, though, requires the saver to pass a work test that shows they’ve completed 40 hours of gainful employment in one 30-day period in a single financial year.
Under new rules on downsizing, up to $300,000 from the sale of a house can be put into a super fund, even both those aged 75-plus, with no work test required.
Surveys on retirement expectations are often worrying, with many people expecting a cash-strapped later life. But with a super balance of $200,000, there is room to make retirement more comfortable.
Article first published on Starts at 60 in October 2017.
Example assumes the average Industry SuperFund investment return of 9.49% over the past 5 years, based on SuperRatings’ modelled net benefit outcome taking into account historical earnings and fees of the main balanced investment options of 16 Industry SuperFunds’ retirement income products. Modelling as at 30 June 2017. Capital growth will not continue throughout retirement. Past performance is not a reliable indicator of future performance. Outcomes vary between individual funds. Consider a fund’s PDS, your objectives, financial situation and needs, which are not accounted for in this information, before making an investment decision. For more details about modelling see industrysuper.com.au/assumptions. ISA Pty Ltd ABN 72 158 563 270 Corporate Authorised Representative No. 426006 of Industry Fund Services Ltd ABN 54 007 016 195 AFSL 232514.