How much Super do you need to retire?

Having worked hard all our lives, we’ve earned a comfortable retirement. But that won’t happen for most people if they just rely on their super. 

People’s ideas as to what a comfortable lifestyle is are bound to differ. Some people can get by on relatively little while others need a whole lot more. How much money you need will depend on several factors: when you retire; if you own your own home outright; how long you live; your current lifestyle; and your medical costs. 

Assuming you are 65, live to 85, own your home and are in average health for your age, ASIC’s (Australian Securities and Investment Commission) Money Smart website estimates that for a couple to retire comfortably, they will need $60,000 per year or $1,143 per week. For a single it is $44,000 or $835 per week. 

So what does this get you? According to Money Smart this will get you one decent car, an annual holiday in Australia, good clothes and haircuts, private health insurance, regular eating out and the opportunity to drink your wine out of a bottle rather than a cask. 

In order to afford such a lifestyle, they estimate a couple needs $640,000 and a single $545,000 in super, assuming a partial aged pension from the beginning of retirement. However, this may not be enough to give you the lifestyle you want.  The Commonwealth Bank’s Retire Ready Index assumes that you need two-thirds of your income to maintain your pre-retirement lifestyle. Many people’s retirement dreams feature overseas travel, for instance.

Unfortunately, from figures based on the 2011 Census, over 80% people who had retired since the previous census were retiring on less than $21,000, which is little more than the aged pension. 

For most people this means you need to make investments outside of your super.  Given that most super funds are primarily invested in the share market, property investment can also help to diversify your retirement funds, by insulating you against the known volatility of shares. 

The ideal way to use property to fund your retirement is to buy affordable properties then, when you retire, sell enough of them to pay off all your debt and keep the remaining properties and add their rental income to the income you get from super. 

The earlier you start the better, but even one property with a net rental return of $400 per week can lead to an extra $20,000 per annum extra in your retirement income. 

The following scenario shows how you can also add to your retirement wealth through capital gain. If you buy a property for $400,000 and borrow the purchase price plus purchase and loan costs – total borrowings $410,000, in 15 years (assuming a capital growth rate of 5% and an inflation rate of 3%) it will be worth $829,000. Subtract the loan amount of $410,000 and you will be left with $419,000.  If you sell the asset you will have to pay capital gains tax (the amount depends on your income) and agent’s fees, leaving you net equity of around $289,000, a significant enhancement of your retirement fund. 

If you’d like to find out how you can best make this scenario work for your future, give Pfeiffer Property a call today.