Superannuation shortfall solutions

Having enough money in superannuation to provide for a comfortable retirement should be high on your list of priorities, no matter what age you are.  Unfortunately however, for many people it won’t be that easy, with information provided by the Westpac Bank showing that at age 70, only 1 in 5 Australians will have any superannuation left.

While the numbers may cause quite a shock, the underlying theme has been around for a long time; a large number of Australians will not have enough money saved to enjoy a comfortable retirement.

What constitutes a ’comfortable retirement’?

So just what is a comfortable retirement?  Well, lifestyle needs are a personal thing; what’s comfortable for some may be inadequate, or even affluent, for others, depending upon what they are used to and what their goals are..

The Association of Superannuation Funds of Australia (ASFA) has attempted to define the amount of income required to live a comfortable retirement through its regularly revised ASFA Retirement Standard. (//

Based on the costs of a range of household essentials, as well as leisure activities, it has arrived at the following figures:

Modest Lifestyle – Single                    $21,746 per year
Modest Lifestyle – Couple                  $31,519 per year

Comfortable Lifestyle – Single            $40,121 per year
Comfortable Lifestyle – Couple          $54,954 per year

To live a modest lifestyle, as defined by the income needed above, the maximum government Age Pension will go most of the way to meeting this target (currently $19,468.80 a year for singles and $29,354.00 a year for couples). However, it is likely major travel plans will need to be shelved, as there is not much fat left over when living off the pension.

The importance of building a retirement nest egg

If you intend to live on more than the government Age Pension, then you need to generate income from your own retirement savings, and the most tax effective way to do this is by boosting your superannuation savings before you retire.

Whilst the 9 per cent Superannuation Guarantee enables Australian workers to build a retirement nest egg, for most of us this alone is not adequate to fund a comfortable retirement. So, what can you do to get yourself on track?

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The following are just some things you should consider, no matter what age you are…

1.      Seek professional advice

This is the most important step.  A qualified adviser will provide you with a clear, step-by-step plan to help you achieve your goals.  Look for an adviser who prioritises strategy over products.  The strategy includes how best to structure your assets, how to build them over time in the most tax-effective manner, how to protect them in the event of injury or illness and how to ensure they go to your intended beneficiaries when you pass away. These are all critical steps along the path to a comfortable retirement, and a qualified adviser will understand how best to work within the rules and regulations to achieve the best outcomes for you.

2.      Plan early

The earlier you can start planning, the better your chances of meeting your retirement targets.  Don’t fall into the trap of waiting until retirement is around the corner to prepare for it.  Early planning helps position you to achieve maximum government benefits in retirement, as well as maximising the value of your nest egg. It is never too early to start planning. However, even if you have left it late, there are sure to be strategies available to improve your position.

3.      Set realistic and affordable goals

There is a trade-off between enjoying your money now versus having enough for later on.  It is important to set realistic goals about what you want to do in the future and assess the affordability of these goals.  Sure, it would be nice to take an overseas trip each year, or buy that expensive car, but just what impact will this have on you and your family over the longer term? If it leaves you living solely off the Age Pension for 20 years, is the short term gain worth it?

4.      Review your superannuation fund

You should review your superannuation fund and whether it continues to be suitable for your needs.  There are different types of Funds, from Employer, to Retail, to Industry, to Self Managed.  Each have their pros and cons, so finding the type that best suits you and your objectives is critical and can make a huge difference. Again, this is where an experienced adviser can help.

If you have several different funds, consider consolidating into the one fund – this may save you fees and makes it easier to manage.  It is important to remember that your superannuation is your money, and you need to take an active interest in how it is being managed.

 5.      Consider salary sacrifice

If you are at a stage in life where you are generating income that is surplus to your needs, a tax-effective way of building your assets is to direct part of your pre-tax salary to superannuation via an arrangement with your employer. 

Salary sacrificed to superannuation is taxed at 15%, compared to your marginal tax rate when paid to you.  This is a very effective way of building your superannuation assets.

However, you need to be mindful of the caps on superannuation contributions (as exceeding these caps will incur additional tax) and the fact that your superannuation is locked away until age 55, at the earliest.

6.      Transition to retirement

You could elect to salary sacrifice a higher amount, and then replenish this by drawing a tax-effective pension from your superannuation fund.  Remember, super pensions are tax-free after 60, so there can be significant tax savings which, in turn, boost your superannuation balance.

7.      Delay retirement

While it may not be ideal from a lifestyle perspective, delaying retirement in turn delays the need to draw on your own assets.  This could add several years to their longevity. At least delaying retirement until you reach Age Pension age allows you to supplement your retirement income with the Age Pension, reducing the drawdown on your own assets.

8.      Consider downsizing your home

If you find you don’t have enough at retirement, or run out of superannuation early, you can always consider downsizing your home to generate surplus capital which can be used to live on.  Most will find that the family home becomes too big to manage at some stage, so a change can have both lifestyle and financial benefits.

By following the above tips, you can go a long way to ensuring you don’t become just another statistic, and can live the comfortable retirement you have anticipated.

Simon Guiliano
Senior Adviser, Segue Financial Services 

Segue Financial Services Pty Ltd
AFS Licence 255257
Suite 2, 307 Wattletree Road
PH 03 9509 1599 FAX 03 9509 1577
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