We all know we need to financially prepare for retirement, but here’s what that actually looks like – in real terms.
Planning for retirement can sometimes feel like you’re trying to hit a moving target, especially when it’s years – or decades – down the track and you’re juggling all sorts of financial commitments. The problem is that plenty of Aussies in their 40s or 50s aren’t even sure what ‘on track’ even looks like for them.
Getting a handle on your retirement readiness is so important. After all, no one wants to end up short of cash in their later years. So, how do you know if you’re on track? I recently sat down with Steven O’Donoghue from Brighter Super, and he had some cracking insights to share about how to work out if you’re retirement-ready and, if not, what you can do about it.
What does ‘on track’ actually mean?
“Retirement is individual,” Steven says. “You only retire once, so you want to do it well.”
The first step? Pin down what type of lifestyle you want in retirement. Would you be happy with a fairly modest lifestyle, or do you want to live comfortably and not have to worry about your cash reserves? ASFA research shows that a comfortable lifestyle for a single retiree requires around $595,000 in super at age 67, while a couple needs $690,000. These figures assume you’ll draw down on your super over time and receive a part Age Pension to cover your day-to-day living costs.
Those are big numbers – so what does it look like in real terms? For a comfortable retirement, ASFA estimates annual living costs of $52,085 for singles and $73,337 for couples if you’re between 65 and 84. A modest lifestyle, on the other hand, costs about $33,134 for singles and $47,731 for couples.
Just remember that these figures only provide a ballpark for what ‘on track’ could look like –your personal goals and circumstances might be different. Use the ASFA calculator and plug in your own numbers for the retirement lifestyle you want.
Check your super balance: Where do you stand?
Is your super balance in line with your retirement goals? According to the latest data, the average super balance for Australians aged 45 to 54 is $219,300 for men and just $136,000 for women. That’s a fair way off from those ASFA targets, and it’s why most people will need to beef up their super contributions in their later working years.
If you’re around 10 to 15 years away from retirement, now’s the time to really dig into your super balance and see if it lines up with where you need to be. If you realise that it’s not enough to support your retirement goals, think about making some extra contributions. An online retirement income calculator can help you gauge if they’re on the right track or not.
How to get ahead by boosting your super
When it comes to ramping up your super, the decade before retirement is prime time to make your moves. Steven’s top recommendation is to start salary sacrificing. It’s a strategy where you put a portion of your pre-tax income into super, thereby reducing your taxable income while super-charging your superannuation balance.
Another option is consolidating your super if you’ve got multiple accounts floating around. Fees are the big one here. Every superannuation fund has its own set of fees, so by consolidating into one account you’ll limit the total amount of fees you incur.
Other super contributions worth considering
Beyond salary sacrifice, there are several other ways to reach your target balance:
- Spousal contributions: If your partner’s super is lower, you might be eligible for a tax offset by contributing to their super account.
- Carry-forward contributions: If you haven’t maxed out your concessional contributions in previous years, you might be able to use this rule to make catch-up contributions.
- Downsizer contribution: For anyone over 55, this handy rule lets you contribute up to $300,000 per person (or $600,000 per couple) into your super from the profit from downsizing your home. It’s a great way to boost your super in a one-off hit, especially if the kids have flown the coop and you want to free up cash for retirement.
Quick tips for staying on track
To wrap things up, here are a few takeaways to make sure you’re on the right track for retirement:
- Review, review, review: Check your super balance and investment performance at least once a year. A little nudge now and then can keep things on course.
Start salary sacrificing early: Even a small amount makes a big difference over time thanks to the magic of compound interest. - Consolidate your super: Multiple accounts mean multiple fees. Consolidate to keep fees low and maximise your returns.
- Know your retirement number: Check in with ASFA’s latest retirement standards as a guide for what a ‘comfortable’ and ‘modest’ retirement might cost, and then match your goals accordingly.
- Get professional advice: Don’t leave retirement planning to guesswork – speak with your super fund or a financial advisor to get some support.
For some, retirement might feel like a long way off, but the years move quickly and your super balance needs time to grow. It doesn’t matter if you’re a bit behind right now – taking proactive steps today can make all the difference later.
