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How much super do you need to retire? If you want to stop working one day, it’s an important question to ask. There’s no magic number for how much you’ll need in retirement - it’s different for everybody.
To help you figure out how much is enough, we’ll look at the different types of income you might expect to receive in retirement and what your super could be worth as an annual income.
We’ll then look at how to build a retirement budget based on your current and future expenses.
We’ll also look at tax-effective ways to receive your super as an income when you retire, or even while you’re still working. And how to save more, if you can.
Ok, let’s get started. When you retire, your income will come from a combination of
super savings, personal savings, any other investments you have, and also, depending on your situation, the Government Age Pension.
How much comes from each will differ for everybody.
Before you can figure out how much you’ll need in retirement, you’ll need to think about how long retirement could last.
Australians are living longer, which is great.
In fact, if you're 65 now, there’s a good chance you'll live into your 90s. So, your super may need to last up to 30 years.
So, how much super will you need? The good news is, you’re likely to need less money in retirement than you need now, because once you retire, you won’t be paying tax on your income or making super contributions. And you might have paid off your mortgage and other debt. You’ll even get seniors discounts, which can reduce day-to-day costs such as public transport.
That’s why, to keep your current lifestyle, most people will need around 70% of their current take-home pay in retirement.
While the super in your account may seem like a large sum, it’s important to start thinking about what your super could be worth as an annual income.
To give you some idea, let’s look at Tina. Tina is 67, an Aware Super member, and has $320,000 in super.
If you think about that amount needing to last until age 95 – as an annual income it will be around $17,000 per year.
It doesn’t seem like much, but don’t worry - it’s not the end of the story. Because, like 60% of Australians, Tina is also eligible to receive payments from the Government Age Pension. This could mean up to an additional $25,000 a year. Through her retirement, Government Age pension payments will make up 60%, and super will make up 40% of Tina’s retirement income.
Ok, so now that we’ve thought about retirement income, let’s look at how you can budget for retirement. It’s important to remember that your biggest living expenses when you’re working are usually different once you’re retired.
When you’re working, your 3 biggest expenses are housing costs, such as rent, mortgage repayments and home improvements.
The second biggest costs are grocery bills.
The third is transport, which includes public transport and the costs of running a car.
But when you’re retired, your groceries are likely to be your biggest expense, followed by Health Services and Leisure activities, such as travel.
A simple way to budget for retirement is by looking back at what you’ve spent in the past year.
Start with your annual take home pay. Subtract anything you won’t be spending in retirement, such as your mortgage or debt repayments.
What’s left is what you currently spend on your lifestyle, and what you’ll need as a retirement income if you want to maintain a similar lifestyle.
As mentioned earlier, this is different for everyone, but for most people it’s about 70% of your current income.
Okay, so now you’ve got an idea of how much income you’ll need to retire.
But did you know you don’t have to take all your super out when you retire? In fact, doing so could reduce the overall income you have in retirement.
Keeping your money in super and converting it into steady income when you retire is easy, by simply opening a Retirement Income account. And because your money stays invested in the market all throughout your retirement, it can mean you retire with more.
Before you can start receiving income from your super, you need to reach what’s known as your preservation age, shown in this chart. This is the age when the government allows you to access your super.
You can also access your super if you’re 60 or over and change employers - or temporarily stop working.
And from 65 onwards, you can start withdrawing your super whether you’re working or not.
There are two ways to keep your money in super and convert it into a steady income, while you’re still working or when you’ve retired. Once your account is set up, you’ll receive payments directly into your nominated bank account.
For both options, since your money stays invested, it keeps earning investment returns- which means you could have more income throughout your retirement. And there are tax benefits too.
Let’s look at the first option. If you’ve reached your preservation age and you’re still working, you can open a Transition to Retirement account.
This can be good if you’d like to work less, but still want to maintain your current pay.
A Transition to Retirement account helps you ease into retirement by paying you an income from your super, while you continue to work. So your super keeps growing as you start to wind down. And you could save on tax at the same time.
The second option is to convert your super into income by opening a Retirement Income account with us.
You can do this when you retire and meet your preservation age, or once you’ve reached 65.
A retirement income account lets you start withdrawing regular tax-free income from your super. And because you’re still invested, your super can keep growing.
With this account, you control how much and how often you receive payments, and you can make changes whenever you need to.
So, now that we know more about Income accounts, let’s look at the benefits of staying invested. Because if you keep your money invested, it could mean you could have more income to enjoy in retirement.
In this example you can see the difference between withdrawing super and investing your money in a bank account, compared to leaving your money in super and receiving it as an income. Staying invested in super means you could have over $7,000 more each year.
Over time, this could add an extra 15% to your total savings.
Growing your super is important. So, now let’s look at some simple things you can do to give your super a boost, so you can end up with even more for your retirement.
We’ll start with combining, or consolidating your super.
Super funds charge fees to take care of and help grow your money.
And the more funds you have, the more you could pay in fees.
Your super is your money. So if you want to keep more of it and grow it faster, it might be smart to combine all your super into one account.
Another simple way to grow your super faster is through salary sacrifice, if you can.
With salary sacrifice, you simply ask your employer to pay some of your salary straight into super.
You’ll likely pay less tax on this money paid into super too, so in the long term you could end up with more.
Even small amounts can make a difference. Let’s look at an example
Susan is 35, earns $65,000 a year and plans to retire at 67.
She currently has $62,000 in super.
If she continues putting the minimum into super, her total super at retirement will be $520,000.
However, if Susan puts an extra $10 a week into super, with salary sacrifice, she’ll retire with $25,000 more.
And with $30 extra a week, she’ll retire with $594,000. That’s $74,000 extra to enjoy in retirement - tax free.
Susan will also reduce her taxable income by doing this, so she’ll pay less tax too.
Another option is to add more to your super using the money from your take-home pay.
Called after-tax contributions, these extra savings may be eligible for a tax deduction, by simply filling out a form with us - called a Notice of intent to claim.
And if you’re on a lower income, you could receive up to 50 cents from the government for every dollar up to $1,000 you put into super from your after-tax pay. That could mean as much as $500 extra in your super account next year - in what’s called a Government co-contribution.
Knowing how much super is enough, and how much you’ll need to retire can take time to figure out. Everybody’s needs in retirement will be different – but there’s one thing we all have in common: the sooner we start planning the better.
To find out more, or to make sure you’re on the right track, make a free appointment with one of our experts, just visit aware.com.au/book
Understanding the Government Age Pension is important for planning your retirement.
So you can see how it works with super, we’ll look at eligibility for the Government Age Pension and how it can make your super last longer. We’ll also look at how you can begin to access your super, and other Government benefits.
While you’re working, your income is mainly the salary you earn.
But when you retire, your income could come from a few different places:
Your super savings, your personal savings, any other investments you have – and the Government Age Pension.
The Government Age Pension is an income support payment to help eligible older Australians afford their basic living expenses in retirement.
More than 60% of Australians over the age of 65 receive extra income from the Government Age Pension.
Generally, to be eligible you need to be:
- at least 65 years old and retired from work
- an Australian resident and have lived in Australia for at least 10 years
The age when you can start receiving the Government Age Pension depends on when you were born.
You’ll find your eligible age on this chart.
If you’ve reached the required age, you’ll also need to prove that you actually need the pension.
To see if you’re eligible, the Government uses income and assets tests. For couples, your combined assets and incomes will be tested.
The income test looks at all the sources of income you receive. This includes income from financial investments such as your super, savings and shares
The assets test measures the value of the things you own, including your car, furniture and other valuable assets like jewellery and boats.
Once you’ve reached your age pension age, the assets test will also include your super.
The assets test does not include your home.
Whichever test gives you the lower payment amount is the one that will be applied.
If you qualify for the Government Age Pension, you’ll receive a payment every two weeks.
As at October 2022, that means a maximum of about $980 for a single person or around $1,480 for a couple.
Or around $25,670 a year if you’re a single person and around $38,700 a year for a couple.
These amounts change regularly, so you should check to see what they are currently.
As we’ve just seen, the Government Age Pension is designed to work with super and make it last longer.
Now let’s look at how you can start receiving your super as an income; which you can do once you’ve reached your preservation age.
You’ll find your preservation age on this chart.
Remember, your preservation age is different from your Government Pension age, which was shown earlier.
There are two ways to keep your money in super and convert it into a steady income, while you’re still working or when you’ve retired. Once your account is set up, you’ll receive payments directly into your nominated bank account.
For both options, since your money stays invested, it keeps earning investment returns- which means you could have more income throughout your retirement. And there are tax benefits too.
Let’s look at the first option; If you’ve reached your preservation age and you’re still working, you can open a transition to retirement account.
This can be good if you’d like to work less, but still want to maintain your current pay.
A transition to retirement account helps you ease into retirement by paying you an income from your super, while you continue to work. So, your super keeps growing as you start to wind down. And you could save on tax at the same time.
The second option is to convert your super into income by opening a Retirement Income account with us.
You can do this when you retire and meet your preservation age, or once you’ve reached 65.
A Retirement Income account lets you start withdrawing regular tax-free income from your super. And because you’re still invested, your super can keep growing.
With this account, you control how much and how often you receive payments, and you can make changes whenever you need to.
So, now that we know more about Income accounts, let’s look at the benefits of staying invested. Because if you keep your money invested, it could mean you could have more income to enjoy in retirement.
In this example you can see the difference between withdrawing super and investing your money in a bank account, compared to leaving your money in super and receiving it as an income. Staying invested in super means you could have over $7,000 more each year.
Over time, this could add an extra 15% to your total savings.
Now let’s look at an example of how the Government Age Pension can help make your super last longer.
Eliza is 67 and has just retired. She lives with her dog, in a house she owns and has paid off her mortgage. She has $150,000 in super but very few other assets, and only a small amount in of savings.
Eliza works out she’ll need $38,000 a year to spend in retirement.
Then, using the Centrelink Payment Finder tool, Eliza finds out she could receive about $25,000 per year from the Government Age Pension
Eliza can make the most of her Age Pension payments, and use this $25,000 a year first, so she’ll only need to withdraw $13,000 from her super each year.
Without the Government Age Pension, allowing for investment growth of 5% a year, Eliza’s super would last just over 4 years, but with the Government Age Pension her super could last over 15 years, until Eliza is 82.
Now, here’s an example where the Age Pension won’t apply.
Marg and Gino are 70, married and retired.
As high-income earners, they’ve paid off the mortgage on their home. They have about $600,000 combined in their super accounts. And they also have a holiday home worth about $450,000 that they rent out.
Their home isn’t counted towards their assets, however using the Centrelink Payment Finder Tool, they discover the combined value of their super and holiday home is above the Assets test limit.
They won’t be eligible for the Government Age Pension, so Marg and Gino will need to use their super and their rental income to fund their retirement.
As well as providing income to make retirement possible, the Government offers benefits for retirees to help make life less expensive.
If you receive the Government Age Pension, you’ll also receive a Pensioner Concession Card.
This saves you money on things like medicine and health services. Depending on where you live, it could even save you money on gas, water, electricity, car registration and public transport.
If you’re not eligible for the Government Age Pension, you might qualify for a Seniors Health Card.
This saves you money by lowering the cost of prescription medicines, health services, energy bills and transport.
As you’ve seen, over 60% of Australians will use the Government Age Pension to help bridge the gap between super, their savings and their desired retirement income. To make sure you’re on track, make a free appointment to speak to one of our experts at aware.com.au/book
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