How Much Super Do I Need for a Comfortable Retirement?

You are somewhere in your fifties or sixties, you have a super balance you can log in and check, and you have absolutely no idea whether it is enough. Meanwhile a mate at the golf club has told you that you would be mad to save too much, because the Age Pension gets taken away.

Both of those worries deserve a straight answer. So here is the answer I give most often, written out the way I would sketch it on a piece of paper across the table.

The two questions behind every retirement conversation

As a financial adviser, the two questions I field more than any others are these. How much super do I need in order to have a comfortable retirement? And how much Age Pension might I still qualify for based on how much super I have?

People usually ask them separately. They are actually one question, because the Age Pension and your own savings move in opposite directions. As one goes up, the other comes down. The interesting part is what happens to the total.

The assumptions behind the numbers

Numbers without assumptions are useless, so here are mine.

A couple, both aged 67. Homeowners, with no debt. Around $100,000 in personal assets, meaning non-financial assets. Those are not deemed under the income test, but they still count against you under the assets test, which trips a lot of people up.

And drawdowns of anywhere between 5% and 8% a year from super, depending on the balance and what might be a reasonable rate at that level.

One more thing worth clearing up. When I say super, the assets test does not only mean super. An investment portfolio held outside super counts as a financial asset too. The rules do not much care what wrapper it sits in.

$400,000 in super

Start here. With around $400,000 in super and those other assumptions in place, this couple would be entitled to just under the full Age Pension. Just under $47,000 a year.

Couple that with a drawdown of around 5% a year from super, which is an extra $20,000, and the total is $67,000 a year.

Like it or hate it, that is the number.

$600,000 in super

Move up to the next step. With around $600,000 in super, the Age Pension entitlement drops to around $31,000 a year.

At that balance I would be a bit more comfortable drawing 6% a year, which is $36,000. Add the two together and you get $67,000 a year.

Read that again. It is exactly the same total as the couple with $400,000.

So why bother with the extra $200,000?

This is where people throw their hands up and say there is no point saving more. I disagree, for two reasons.

The first is obvious once you say it out loud. You have an extra $200,000 in super to spend on whatever you want to spend it on. A caravan, a kitchen, a couple of trips, helping the kids. That money exists. The couple with $400,000 does not have it.

The second is more useful. As that balance drops, your Age Pension entitlement goes up. The system works as a shock absorber. Spend a chunk of capital and the pension partially backfills the income you gave up. That is a much better position to be in, if you ask me.

$800,000 in super

The third step is around $800,000 in super. Age Pension entitlement drops again, to roughly $16,000 a year.

At this point a drawdown of around 7% a year becomes plausible, which takes total income to about $72,000 a year.

That is getting a lot closer to what ASFA defines as the comfortable standard of living for a couple who own their home in retirement. It is worth noting that this is the first step where the total actually moves. Between $400,000 and $600,000, the total stayed flat.

$1,000,000 in super

Last one. With around $1,000,000 in super, coupled with the other assets in this example, you clock out of the Age Pension entirely. That is where the cap ends.

What you get instead is around $80,000 a year drawn from the account-based pension. Eighty grand in total to live off in retirement, all of it your own money.

And here is the part people forget. If that balance starts to drop, you come back into pension entitlement and start to receive a part Age Pension again. You are not locked out forever.

The concession card question

Coming back into a part pension does not just mean a bit of extra income. It brings the pensioner concession card with it, and all that goes with that.

People tend to focus on the dollars of the pension itself and discount the card. In practice, the card is a meaningful part of the picture for a lot of retirees, particularly as health costs rise later in retirement.

What this does not tell you

I am not saying any of these numbers are right for you. They might not be.

Every figure above depends on the assumptions I set out at the start. Change the age, change the home ownership status, add debt, add a partner still working, add an inheritance, add a health issue that shortens or lengthens the time horizon, and every line moves.

Drawdown rates are the same. Five percent might be sensible for one couple and reckless for another with a family history of long life and low tolerance for market falls. There is no universal safe number.

This is general information. It does not account for your situation, and it is not a recommendation to draw a particular percentage or hold a particular balance.

When it is worth getting personal advice

If you are within about ten years of stopping work, this is the point where a conversation earns its keep. Not because the maths is complicated, but because the sequencing is.

When to stop contributing. Whether to bring forward or delay drawing down. How the assets test treats a renovation, a car, a gift to the kids. Whether one of you retiring earlier than the other changes the picture. Those are the decisions with real dollars attached, and they are hard to model on the back of an envelope.

At Advice Loop we start with a Financial Health Check. It runs 60 minutes, costs $495, and unpacks where you are now against where you want to be, followed by a tailored roadmap in a Financial Gap Report. If you would rather test the water first, give us a call or send us an email.

The bottom line

The question is not really how much super you need. It is how much income the combination of your super and the Age Pension will produce, and how comfortable you are with that number.

On the assumptions above, $400,000 and $600,000 both produce around $67,000 a year. $800,000 produces about $72,000. A million dollars produces around $80,000 with no pension at all, and a safety net that switches back on if the balance falls.

Knowing which of those lines you are standing on is the useful part. Everything else follows from it.