Did you know that many of us will spend more than a quarter of our life retired, as people are now living until an average age of 86 years (males) and 89 years (females)? And by 2050, life expectancy is expected to rise to 91 for males and 93 for females – that’s a long time to plan for when considering the retirement lifestyle you want*.
1. Think how you want to live in retirement
There are lots of factors which influence how much you need for retirement, such as when you want to retire, what sort of lifestyle you have or want to have, whether you own your home, or if you still have dependants. According to ASFA’s Retirement Standard singles aged 65-84 need $47,383pa and couples $66,725pa for a comfortable retirement.
You can check out this Super Guru calculator to see how much super you should have today to reach a comfortable retirement by age 67. It's important though to understand how much you’ll need for the things you want, as ASFA’s definition of comfortable lifestyle may be different to yours.
2. Maximise your super contributions to boost your balance
Investing extra money into your super is one way you can help set yourself up for a comfortable retirement. One of the great benefits of super is that earnings are taxed at a lower rate. So, unlike other types of investments, any earnings you make on your super will be taxed at a maximum of 15% instead of your marginal tax rate.
For example, if you invest your money on the share market, your earnings could be taxed at a rate of up to 47% (including levies), depending on your income. In comparison, any investment earnings in super are only taxed at a maximum of 15% (catch being, you can’t access this until you reach preservation age). And depending on your circumstances, you can also get tax benefits by making extra contributions. Find out more on our Top up my super web page.
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The snowball effect of compound interest
Even small contributions can really snowball over time, thanks to the magic of compound interest. Adding an extra $20 a week to your super, could mean an extra $24,273 in retirement^. And the earlier you start, the better, so forming good habits now can really pay off in the future! Head to the Super Guru website to check what small changes you can make now to save big later.
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3. Consider a pre-retirement pension strategy
Whether working full or part-time, the pre-retirement pension strategy allows you to access your super by taking out a pension without having to retire. This is known as a pre-retirement pension (PRP) and can be used by people under age 65 who have reached preservation age.
It allows you to reduce your working hours and use the PRP to supplement your income. Or, you can keep working fulltime while increasing your before-tax super contribution (up to the contribution cap), and use your PRP to supplement your income. By changing how you receive your income, you can generally reduce the amount of tax you pay.
4. See a financial adviser
If all this sounds a bit complex, you’re not alone. A qualified financial adviser can help you navigate the options that are best for you. They can help you work out how much you’ll need in retirement, when you can retire and the best way to get there.
If you want to discuss what a comfortable retirement could look like for you, the team at Mine Super Financial Advice can help. They're here to support you to make confident and informed financial decisions, tailored to your needs and life stage. And if you’re a member, you're entitled to a complimentary appointment with Mine Super Financial Advice.
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* Source: SuperGuru, How much super will I need?
^ Calculation made using Super Guru calculator and based on a 45-year-old person putting an additional $20 each week into their super account as an after-tax contribution, assuming 4.80% pa growth over 22 years (and retiring at age 67). Calculation as at 27 July 2022.