Alternatives

How Much Super Do I Need To Retire?

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What is going ON people!

Apologies for being slightly AWOL as I was pre-bloody-occupied.

With what?

Being busy, busy, BUSY OK??!!

Ahem. Sorry, sorry.

Calm TheFrugalSamurai, calm.

“Takes deep breath”.

So guys, today I wanted to discuss that pivotal question on every man, woman and child’s mind…

How much do I need to retire?

The answer is… it depends on the type of tyre, its current wear and tear and whether it can be rety… ohhhhh. Wait.

How much?

This much.

“Spreads arms wide open”.

No really, it’s this much:

*base rate before supplements (as in monetary, not protein, YOU LIFT BRO? OK calm down please).

I got this from The Association of Superannuation Funds of Australia (link here). ASFA as they are known is a prominent non-profit research, advocacy and lobbyist here in Oz. So I think they do er, stuff for… things.

Anyway, what do you think of living off $61,786 as a couple? Would you feel it’s comfortable? How about $40,194 on a modest lifestyle?

Irrespective of yes or no, let’s take a look at how much super we need in order to get there…

HOW much?

Here ya go:

But lookie here! If you only wanted a modest lifestyle, supplemented with the age pension it’s much, much less:

Man, I spent 20 minutes trying to adjust these margins so they look “pretty”. I suck at computers.

Shitty margins aside, it can seem pretty daunting to see the superannuation balances required to jump from $40,194 to $61,786.

Almost seems like it’s not worth it right?

And it’s even more depressing when some people throw around figures like…

“As they approach retirement, many Australians start questioning whether their superannuation balance is adequate…A commonly cited figure is A$1.6 million”

W T F.

“Faints’.

Let’s be serious.

OK look, at $1.6m for an individual, $3.2m for a couple, chances are you’ve got retirement more or less sorted.

If so, I’m happy for you, and would love to learn how you did it, please email info@thefrugalsamurai.com and I thank you in advance.

If not, then perhaps ask yourself whether you really need that Maserati decked out in Gucci?

The only occasion which I can think when it’s not enough, is if you have debts coming out of the whazoo, perhaps a primary mortgage which takes away a huge chunk of that $3.2m…

So I think it’s reasonable to say that the level of superannuation required for a couple is somewhere between $640,000 and um… $3,200,000.

But how do you compare?

If you’re wondering how you’re tracking along against your age group, I found this cool chart here:

And if you’re wondering how you’re tracking along for retirement, have a look at this one:

Ouch!

That’s a lot of red.

Although, I suspect that many of us hold multiple superannuation accounts which dilutes our total balance – so the overall figures are not THAT bad.

Still, it is concerning to see.

So what to do?

The first thing you should do, is to check whether you hold multiple super accounts.

This is because you are often paying fees on each separate account, as well as compounding returns on smaller balances is much less effective than a bigger balance.

Have a look at ASIC’s moneysmart website on consolidating super funds here.

Or you could go direct to the ATO’s website here.

Both provide simple and easy steps as to how to consolidate into the one super account.

Which one is best?

Whichever one is “best” typically comes down to, the lowest fees, highest returns, most accommodating insurance policies and other special perks and benefits (e.g. from employee-only funds).

BUT, you’re in luck, because I wrote an earlier piece on how you can find out here.

What’s next?

Next, is to determine what you want to invest in.

Most people are like MrsFrugalSamurai, don’t know, don’t care, just pay 9.5% into the super every pay cycle.

YOU’RE WRONG WOMAN! Is what I would never dare say to her.

Still, ever wondered where all this 9.5% goes into?

Usually invested into your super fund’s “default” option, which provides a reasonably well diversified mix of shares, bonds, cash, ETF’s and the like.

Nothing wrong with leaving it in there, some funds have consistently done well.

I want more!

If like me, you want a bit more hands-on, there are a number of superfunds which allow you to invest directly.

Personally, I am with Australian Super, and have been since my first employer – they’re quite good with their default returns as well as being relatively cheaper both from a fees and brokerage perspective.

But a word of warning!

Investing always carries risk – you see it time and time again. I’d only recommend direct options if you can outperform the default option, otherwise what’s the point?

Final Thoughts

To be honest with you, I’ve always thought super as a bonus – nice to have but can’t be relied on.

Which is why I’m aiming to FIRE much, much earlier – by investing outside of super.

Through property, through shares, through ETF’s (looking into this), heck even through alternatives.

There is plenty of things to do, but I’ve never discounted super – after all, even if you don’t quite get there to the benchmark, a six figure super balance is a handy little lump sum to receive.

And then there are some who say, why bother? I’m satisfied to live off a government pension.

Which is fair enough.

Although who knows what will happen in 30 years time, what the criteria is by then and what amount you can receive – do you want to take that risk?

And a final, final thought.

Is to be aware of inflation risk – as the amounts and figures above are based on 2019 figures.

If, like me, you have a good 30ish or so years to go before even thinking about accessing super, then perhaps $1.6m isn’t that big of a sum after all!

So, what are you going to do? Let me know in the comments below!

Oh and if you don’t know anything, ask, ask, ask away! If I don’t know the answer, I’ll try and find out for you!

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