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 question, and you’ll often hear dire warnings that you don’t have enough.

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

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

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

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

Australians who own their home spend an average of 20-25 per cent of their income on housing while working, largely to pay the mortgage.

But that drops to just 5 per cent among retirement homeowners, because they only have smaller things like rates and insurance.

And whatever income you need at the beginning of your retirement generally falls as you age.

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

Most of your health and senior care costs are covered by the government.

So how much retirement do you need?

Consumer Group Super Consumers Australia has reduced the numbers on retiree spending and presents three robust ‘budget standards’:

• A ‘low’ standard (i.e. sufficient for a person who wants to spend more than 30 percent of retirees)
• A ‘medium’ standard (spending more than 50 percent of retirees), and
• A ‘high’ standard (more than 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 $30,000 a year for singles and $45,000 a year for couples.

To meet Super Consumers Australia’s ‘median’ retirement standard, a single owner must have saved just $279,000 in Super at age 65 to be able to spend $41,000 a year. A pair needs just $371,000 in super between them 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 in retirement and couples $95,000 (while also qualifying for a full age pension of $30,000 a year).

That assumes you own your own home (more on that later).

Ignore Super Lobby Estimates

Australians should ignore the superannuation standards produced by Super Lobby Group, the Australian Superannuation Funds Association.

Their ‘comfortable’ standard assumes retirees need an annual income of $52,085 as a single 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 80 per cent of single working Australians, and 70 per cent of couples, spend today.

For most Australians, saving enough to meet the Super Lobby ‘comfortable’ retirement standard in retirement may only be uncomfortable during your working life.

Most Australians are on track for a comfortable retirement

The good news is that most Australians are on their way.

The Federal Government’s 2020 Retirement Income Review concludes that the majority of future Australian retirees can expect an adequate retirement, replacing a more than reasonable portion of their pre-retirement earnings, up from the 65-75 per cent benchmark nominated by the review.

Even most Australians who work part-time or have broken work histories will hit this benchmark.

The increase in mortgage debt does not change this story

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

More Australians are leaving with mortgage debt: about 13 per cent of over-65s had a mortgage in 2019-20, 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 to pay off the mortgage when they retire would still have an adequate retirement income.

This is, in part, because many would qualify for more age pensions after using a large chunk of Super to pay off the mortgage.

And retirees can get a loan through the government’s Home Equity Access scheme to draw 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 pension they have. age is eligible.

Outstanding debt accumulates with interest, which the government recovers when the property is sold, or from the borrower’s estate when they die, reducing the size of the inheritance that goes to the children.

But what about the tenants?

One group of Australians are not on track for a comfortable retirement: those who do not own a home and must continue to pay rent in retirement.

Nearly half of retired renters live in poverty today.

Most Australians approaching retirement own their own homes today, but fewer will do so in the future.

Among the poorest 40 percent aged 45 to 54, only 53 percent own their homes today, down from 71 percent four decades ago.

But a single retiree renting a unit for $330 a week, cheaper than 80 per cent of one-bedroom units across all capital cities, would need an extra $200,000 in Super, on top of Commonwealth rental assistance ( based on government money, Smart Retirement Planner).

That’s why raising Commonwealth rental assistance to help renting pensioners 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 probably financially comfortable.