How much superannuation do I need when I retire?

Ben Johnston
13 October 2022

I’m often asked the question of what the minimum amount required in superannuation there needs to be when a person retires. And the answer I give is never the same because there isn’t one. The magic number for what Australians need in super to retire on is often publicised as being $1 million. However in truth, it isn’t a ‘one size fits all answer’ and it frustrates me when I read and hear of a fixed number being discussed. Everyone prior to reaching retirement age has lived life in vastly different ways, and this will continue into their retirement years. They have had different salaries, different wants and needs, different standards of living, different interests, and different motivations. Therefore, everyone’s required retirement savings will also vastly differ.

How much you need depends on YOU!

Those that have lived a very simple life can live relatively comfortable drawing the age pension, every dollar they have in either superannuation and/or savings obviously is more beneficial, but people should not feel lost or inadequate if they don’t have the magic number. Sure, it may see an adjustment to their lifestyles, however, it also may mean people need to be open-minded when entering retirement to increase ways in which they can supplement their pensions. This may include renting out rooms in their homes, taking on a casual job or possibly selling an investment property if they find the rental income is providing an inadequate income stream to support their lifestyles.

Think about this!

On the last point, of selling an investment property, people are often reluctant to do this. However as a means of providing an income stream, the net rental income from property is often similar, if not lower, than the age pension provides, even on properties worth north of $1 million.

As an example, many Australians who have no, or little superannuation have purchased an investment property which they brand as their superannuation. As far as an investment goes, this has proven mostly successful over the past few decades due to the capital growth achieved however as a retire ment option it can leave people struggling with cash flow once they retire. The most prevalent reason is that if you have an investment property, and you take the average value across the capital cities in Australia, it will mean you are not eligible for the age pension as you do not satisfy the assets test. Therefore, you will be relying on the rental income to service your lifestyle. With net rents of only 2-3%, the rental income is lower or like that of the age pension. Unlike superannuation whereby at retirement you earn a yield from the investment as well as drawing down on capital, with an investment property you are relying solely on the yield as you are preserving your capital by holding onto the asset. This is great for your kids who will one day inherit your property however for you as an individual you may not live the lifestyle you desire by not selling and materialising the capital held in the asset.

The downsizing rule

A huge decision many retirees also face is whether or not to downsize their main residence to unlock the equity they have in their homes and allow them also to move into a smaller, more maintenance friendly property. There are risks in doing this both from a tax and pension aspect and its imperative that advice is sought before making this move.

Aside, from the potential of being forced to move away from friends and family, for many, their own home is their sanctuary, and they are surrounded by comforts and memories that need to be carefully considered rather than focusing solely on the income that may become available if sold.

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