My Retirement Savings

SUPERANNUATION – we automatically think of superannuation when it comes to discussing retirement. And rightly so as it is the preferred method of government strategy to address incomes in retirement other than the Centrelink – Age Pension system. Besides all that superannuation is very tax effective.

Of course our retirement assets (for living expense drawdowns) can come from a range of asset sources not just superannuation holdings but investment property, shares, managed investments, term deposits/sale of business/home downsizing etc.

However, for a lot of employed Australians their superannuation will be the majority of their retirement monies.

Some of the frequent questions when discussing saving for retirement include:

• How long will my superannuation and everything else I have as investment assets that I can draw on last me in my retirement?
• What does my planned retirement look like in so many years’ time?
• How much should I put into superannuation above what is government mandated or legislated?
• How often and how do I receive an income in retirement for my daily/weekly/yearly living expense needs and those special one off expenditure needs?
• What will I get from the government’s Age Pension system?

Firstly, for all employees it is very important to be aware (and engage in it) that your compulsory employer contributions actually are and what is planned for down the road.

All employers are required to contribute 10.50% of salary /wages of their employees to the superannuation system. This percentage is planned to increase to 12% over the next few years.

How Much is Enough at Retirement

For the purposes of illustration only, if a person’s circumstances were as follows:

• Salary was say $80,000 per annum
• The future compulsory employer contributions of 12% was paid into superannuation for 40 years from say age 25 to age 65
• CPI Inflation averaged 3% per annum (salary increases)
• Investment Return say a net 6.00% per annum

then their projected superannuation at the end of 40 years would be estimated to be approximately $1.9 million through the marvellous workings of regular contributions and compound interest. Bringing this back to present day value (excluding inflation) then the figure is approximately just over $600,000.

Assuming a couple for some partial Age Pension entitlement purposes from age 67 then this amount of investment capital, with initial living expenses of $65,000 pa (in today’s dollars) – indexed to inflation of 3% pa, could be expected to last to a couples late mid-eighties.

Obviously we are living longer and working on longevity to say age 92 the  amount of superannuation investment capital needed would be approximately $2.9 million (in future dollars but 40 years away) and $900,000 (in today’s dollars).

As a rough guide if individuals topped up their superannuation by just 3% of salary over the whole 40 years used in this example then through the power of compounding and hopefully regular CPI salary increases at least then these sort of goals can be achieved.

It is fairly universally accepted that 14% – 15% of salary or other going into superannuation over a full working life will be sufficient to provide a lifestyle of approximately 65% – 70% of your last salary earnings as living expenses in retirement. For those of us with less than a 40 year period remaining then you need to run some numbers depending on existing holdings and time frame remaining before you expect to stop working.

At Plus1 we are available at any time to discuss issues of this nature with due regard to your investments or financial planning generally.