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Personal Finance

How much should I have in my super?

Looking at average superannuation balances for your age may be misleading

Many retail and industry super funds publish the average superannuation balances for age ranges. Investors rabidly consume this content. We love to compare ourselves to others. It fulfills our natural curiosity about others, as being open about finances is still taboo.

It provides validation for investors with higher balances. In theory it provides motivation to individuals with lower-than-average balances although many will choose to avoid viewing the data. Nobody wants to be reminded they are behind.

While potentially validating or motivating this exercise is largely useless. To find out how much you should have in your super is acknowledging the purpose of super – to fund your retirement. Each of our retirements will look different, just as our pre-retirement lives look different to one another. This means that looking at average super balances is a redundant exercise.

There are however, a few insights that you can garner from the ‘average super balance for your age’ tables. Here’s an example of a table below.

Australian Super average balance

Source: AustralianSuper website

The first is that women have lower super balances than men, with the gap widening as you progress through the age brackets. There are a couple of reasons for this. The first is that women typically take more and longer career breaks – both for children and caring responsibilities for elderly relatives. I have written before on how women can prepare or compensate for these career breaks to ensure that there are no negative impacts to their retirement.

The second is that the balances as you get into the older age brackets decreases. As long-term investors, we are told that we will be rewarded for staying the course through compounding of earnings and market returns. It’s important to remember that Superannuation was not compulsory or widespread prior to the 1990s, so it has not always been there for the full working lives of many older Australians. This is important for younger investors to remember if they are setting goals for retirement and trying to use these tables as a yardstick.

Start with understanding your expenses in retirement

The first step is to come up with a comparison that is relevant and useful. Rather than comparing your balance to the average person in your age-range compare your balance to how much super you need to support the lifestyle you want in retirement.

To do this it is worth estimating what your expenses will be in retirement. This may differ from your pre-retirement salary for several reasons. The first is that there will be less incidentals that are associated with work. For example, transport to and from work and lunches that you may buy most days. However, you will have free time in retirement that could mean increased leisure costs and travel costs. This will depend upon how you envision retirement and what it is achievable with your retirement savings. As retirement progresses you may need professional care. Like retirement in general, the duration and extent of care is difficult to predict.

If you hold your retirement assets wholly within super, it is in a different tax environment. Up to $1.9 million of your assets will be tax free and your investments will have tax free earnings and capital gains in the pension environment. Up to $18,200 of income outside of superannuation will be tax free.

Many financial advisers and institutions advise reducing your gross income by 30%. This general rule is meant to account for tax and incidentals that may no longer be incurred.

You can use a tool like to look at your annualised post-tax salary.

The general rule is that expenses increase at the beginning of retirement as many retirees decide to travel and pick up hobbies. These costs tend to decrease after time, and then surge due to specialist and end of life care. However, there may be significant reductions in spending, such as if you are making a sea change, or if you’ve paid off your mortgage.

It is difficult to know how much to exactly put aside as the future is unknowable. However, having a goal instead of simply trying to maximise your wealth will allow you to manage the risk in your portfolio and increase the likelihood that you will achieve your retirement goals.

A dollar today is worth more than a dollar tomorrow

The next steps to knowing how much you should have in your super is understanding that a dollar today is worth more than a dollar tomorrow. Adjusting for inflation is important because your salary today is not going to hold the same value in 30 years.

The RBA has an inflation target rate of 2-3%. We have been going through a period of historically high inflation, but for this calculation we need the long-term expectation.

Morningstar expects inflation to average around 2.8% annually over the long-term. However, this inflation rate is based on an average basket of goods and services. Your personal inflation rate will differ from this. For example, CPI includes housing costs. If you have paid off your house by retirement, this would not be included in the calculation.

We’ve created a spreadsheet to help you calculate this.

Morningstar Investor has a Portfolio Projection tool that allows you to calculate the future value of an amount. In the case of a $70,000 salary, it would have a future value of $160,284 in 30 years.

Inflation retirement balance

You can also use this free tool. Simply enter in your current expenses in the present value, the length of time until retirement in year in number of periods and the expected inflation rate in interest per year. Leave the periodic payment field blank.

If you are early in your career, your salary will most likely increase over time. As will the natural lifestyle creep in expenses that often occurs when our salaries increase.

It is difficult to predict how your salary will change over the course of your career. Some investors choose to add a percentage on top of inflation to negate this impact. Over long time horizons it is inevitable that you will have to refine your goals during portfolio maintenance. These reviews can take part on a half yearly or yearly basis where you can consider the impact of these adjustments.

Calculating how much you need in retirement

Calculating the lump sum you need in retirement is relatively straightforward after going through the above steps.

Divide your estimated annual spending needs by an annual withdrawal rate. We discuss withdrawal rates in this article I’ve written on safe withdrawal rates.

If you have $70,000 in spending needs in retirement and a 4% withdrawal rate, simply divide 70,000 by 0.04 which gives you a total portfolio size of $1,750,000. This figure can be adjusted over time as you encounter the twists and turns of life.

Those inevitable changes shouldn’t deter you from going through this exercise. Knowing where you stand will help you pivot from a position of strength. Adjusting your plan is always preferable than not having a plan at all.

$1,750,000 is significantly more than what the latest Retirement Standard document from the Association of Super Funds of Australia (ASFA) states. They believe that the average superannuation balance needed for a 67-year-old to have a comfortable retirement is $690,000 for a couple and $595,000 for a single person.

The assumption with this figure is that the retiree/s will also receive a part of the Age Pension. With a 4% withdrawal from $595,000, the total income for a single retiree that isn’t a homeowner is $48,316.7 per year.

Your personal super comparison chart

Estimating the size of the portfolio needed to support your retirement allows you to build your own chart which outlines how much you need in super at each age range.

This can be done using this free tool. Use the present value calculator and enter in the total portfolio needed at retirement in future value, the number of years until retirement in the number of periods, the estimated return of your super in interest per year and the amount you plan to save in super in periodic payment.

I’ve created the following chart showing how much someone needing a $1,750,000 portfolio at 65 years of age considering a 7% return and $11,000 of savings into super per year.

Super comparison chart

What next?

Now that you know the lump sum that you need for retirement, you’re able to construct a portfolio around your goal. We have multiple resources that will help you do this.

Morningstar’s Portfolio Construction guide

• Investing Compass podcast episode on portfolio construction

Module 3 onwards of our free Foundations of investing educational course


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