Do you really need $1m to retire?

The most essential step in preparing for a fulfilling and secure life after work is to plan.

For the past few years the figure of $1 million has often been quoted as the ideal amount in superannuation to retire on. It can be a frightening figure to quote as most Australians will struggle to reach it.

It also doesn’t appear to be true.

All individuals need for a modest or low-spending retirement is $70,000 to $90,000, research from Super Consumers Australia (SCA) and The Association of Superannuation Funds of Australia (ASFA) shows – assuming they’re not paying rent or a mortgage in retirement (a presumption factored into all figures from these organisations).

On the higher end, those organisations recommend individuals to save $545,000 to $745,000 in super by ages 65 to 67, for a comfortable or high-spending retirement. The only scenario where $1 million is set as the savings goal is for a high-spending couple in retirement.

So why is $1 million generally more than people need? And is $70,000 in super really enough?

There are a few answers to these questions:

• Firstly, Australians can receive the government age pension (depending on eligibility), which is a maximum of about $1000 a fortnight for a single person. This is factored into the figures outlined above and goes a long way to supplementing income, especially for those that don’t spend a lot.
• Secondly, research shows we don’t actually spend as much in retirement as we think we will. In its 2019 report Great expectations: Attitudes and behaviours amongst Australian retirees, Mercer Australia found conclusively that “people don’t need as much money in retirement as they think”.
• And thirdly, in our working life we’re often paying mortgage or rent. These are significant expenses that the vast majority of retirees do not have, significantly alleviating their financial pressure.

The figures above (fully listed at the end of this article) are only a guide. How much each of us needs in our super is unique to us, our situation and desired lifestyle.

That means the most essential step in preparing for a fulfilling and secure life after work is to plan.

Financially, probably the best step you can make is to see a financial adviser or a smartMonday smartCoach. They will go through your current situation in detail, help you figure out your goals and develop a plan to get you closer to them.

The reassurance of having an expert plan in place is hard to underestimate.

“We find that smartMonday members who have spoken in detail with a smartCoach or adviser and are getting a clear picture of their retirement and financial needs have much less anxiety than those without a plan or clear idea for their retirement,” explains smartMonday head smartCoach Matt Davey

Right now, this is how you can start preparing yourself for retirement:

1. Make what voluntary contributions you can to your super: from your before-tax salary you only pay 15% tax on these contributions – up to $27,500 a year – usually a lot less than your marginal tax rate.

2. Speak with a smartCoach or adviser about what your super is invested in. Are you invested at the right risk level? Are you generating the returns you need?

3. Make sure you’re practising basic super hygiene: nominate a beneficiary to your super, consolidate your super accounts, make sure your contact details with your fund are current, and regularly review your balance and performance.

4. Speak with an expert to start planning for the life you want to live after work.

Retirement savings targets

Byron Smith