Retirement might feel like a world away for a lot of us, but many people don’t know how much super you need to retire. Failure to properly prepare for retirement can come as a bit of a nasty surprise when the time does arrive, but there are some things you can implement now to ensure you’re on the right track.
Whether you’re planning on doing some travelling, taking up a new hobby or simply enjoying spending time at home, you’ll need to have enough money to live comfortably and fund this dream.
Here’s everything you need to know about retirement and your superannuation.
How much super do I need to retire?
While there’s no magic number on how much you need to retire comfortably, there are guidelines around it, based on your needs.
Inovayt Financial Planner, Luke Mase, says, “How much you need is highly dependent on a lifestyle point of view. If someone has a higher cost of living, they’re going to need a higher super balance.”
Any large costs after retirement must be taken into consideration, including things like:
- Travel plans
- Mortgage repayments
- Rental repayments
- Renovations to your current home or investment properties
- Medical bills
It’s estimated for a comfortable lifestyle after retirement, singles need $44,412 a year and $62,828 for couples. For a modest lifestyle, singles need $28,254 a year and $40,829 for couples. This equates to roughly $640,000 in superannuation for a couple or $545,000 for a single. To get an estimate of how much money you’ll have in your super by the time you retire, you can use a superannuation calculator.
How much money should be going into my super?
It’s important to check – especially when starting a new job – that your employer is contributing the correct amount of super into your account. Overall, your employer must pay at least 10 per cent of your ‘ordinary time earnings’ into your super account. To check this, you can head to your myGov account, check your super account either online or via the phone, as well as looking at your payslip. If you find you’re not getting paid enough (or any) super, you need to speak to your employer.
How can I improve my super?
If you feel as though your super fund isn’t growing as quickly as you’d like, or you’re worried there won’t be enough for you when the time comes to retire, there are ways you can increase your super. Six ways to grow your super balance include:
- Salary sacrifice – Salary sacrificing is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages. These extra payments are in addition to the minimum 10 per cent contribution from your employer and come from your pay before tax. This also means you reduce your taxable income. To learn more about salary sacrificing and how you can set it up, head to the Australian Taxation Office (ATO) website.
- Tax-deductible contributions – If you’re unable to set up a salary sacrifice or you’d rather go your own way, you can make a tax-deductible contribution. This type of contribution is done by making a voluntary contribution from your after-tax pay and then claiming a tax deduction. To learn more about tax-deductible contributions, head to the ATO website.
- Voluntary after-tax contributions – You can make personal contributions into your super fund after-tax. Recurring payments can be set up or you can contribute as a once-off payment if you have a bit of extra cash, receive a bonus, etc. How much you can put into your super after-tax depends on contribution caps, so make sure to check your limit.
- Spouse contributions – If you’ve taken some time off to raise a family, go back to school or do something else, your super may come to a bit of a standstill while you’re not receiving regular contributions from an employer. Your spouse can pay a spouse contribution into your super fund, subject to contribution caps.
- Consolidating your super – If you’ve worked more than one job, you may potentially have multiple super accounts with different companies. If this is the case, you can look at consolidating your super into one, as having multiple could set you back thousands of dollars over your working life. Before closing off one fund into another, do some research as to where you’ll get the best value and what benefits you’re receiving.
- Doing a superannuation health check – Just like other things in life, sometimes we outgrow our super funds. Some questions to ask at least once a year include:
- How is my fund performing?
- What fees am I being charged?
- Am I in the right investment option for my life stage?
- What insurance cover do I have in my super?
Asking these questions will allow you to get a clear picture of whether your super is heading in the right direction or if it’s time for a change.
What do I need to look for in a good super fund?
If you find you have outgrown your current super fund, there are a few things to look out for when it comes to researching a new fund. Some of these considerations include:
- Fees – Every super fund charges a fee – either a dollar amount, percentage or both. Be sure to compare fees on different funds to ensure you’re getting the best deal and not losing money to fees. Luke says, “If you’re paying a high amount of fees, make sure there’s a reason why. For example, sometimes it makes sense to pay a slightly higher fee if the fund is giving better returns.”
- Insurance – There are usually three types of insurance for super fund members. These include life insurance (also known as death cover), total and permanent disability insurance (TPD) and income protection. It’s important to look at a few things when comparing super funds, including the premium rates, amount of cover and any exclusions or definitions that might affect you.
- Investment options – The majority of super funds let you choose from a variety of investment options. These options usually include growth, balanced, conservative, cash, ethical and MySuper. Some funds will let you choose your investment options and how these assets are weighted.
- Services – Another thing to look into is whether your fund offers other services which may be impacting your fees. Super funds may offer other services which attract special fees. These can be things like financial advice or arranging to split your super following a separation.
One thing Luke mentions when it comes to choosing or switching super funds is not to get sucked in by what you see on TV.
“Don’t buy too much into what the media says. Always look at it in terms of your own situation and what you need,” he says.
Although retirement might feel like a world away right now, it’s something that is best planned for as early as possible. Knowing how much money you need to retire and educating yourself around the best options for your super fund is important. If you want to learn how to grow your superannuation, book a chat with one of our team.