The gap that could ruin your retirement

The most important gap in Australia has nothing to do with healthcare.

It is the chasm between how much superannuation we have and how much the experts say we need for a ‘comfortable’ retirement.

Plug your date of birth into the Association of Superannuation Funds of Australia (ASFA) super balance detective and it will produce a number often much larger than your balance.

Canstar analysed the difference between the ideal amount and the amount the average Australian has in his or her account, and it’s likely to make for sobering reading for many.

“For every age group, the gap between the required balance for a comfortable retirement and the average balance is massive,” Canstar’s finance expert Steve Mickenbecker told news.com.au.

“For most groups they are only a third of the way there.”

The gap for 60-year-old men is, on average, $249,000. The average superannuation balance of this group is $180,944. ASFA says it should be $430,000. Women of the same age have an average balance of $154,896 and a gap of $275,000. This cohort did not have a super scheme for the first 10 years of their working lives.

“A 60-year-old with an average super balance now has little chance to catch up and the future looks likely to be a part pension initially and, eventually, a full pension and a significantly lower standard of living,” Mr Mickenbecker explained.

“A comfortable retirement means holidays and dining out, not yachts and fine wine, and the number assumes you’re living in your own home without a mortgage,” he said.

Younger Australians have the opportunity to close the gap, but must act promptly.

“The young can catch up, but it’s time to go into repair mode as soon as incomes are restored post-COVID-19,” he said.

“This means making extra salary sacrifices into superannuation during the years when they are also saving for a first home. Most times, home ownership comes first.”

Financial planner Nicola Beswick told The New Daily that planning for retirement was essential.

“Getting advice five years before you retire versus when you have retired can make quite a big difference,” she said.

“The amount of money you need is all relative to what you want to do, where you can get income from, and how comfortable you feel with depleting your wealth, or whether you want to have a legacy to pass on to someone.”

Being realistic about your expenditure is vital.

“A lot of people don’t actually realise how much they spend on just the day-to-day living,” she said.

“We kind of shy away from sitting down and doing a budget and being honest with ourselves around how much we are actually spending and what we are spending money on.”

ASFA’s retirement standards are $43,901 per year for a comfortable lifestyle for a single person and $27,987 for a modest lifestyle. For couples, the figures are $62,083 and $40,440.

YourLifeChoices’ expenditure estimates in retirement are more specific. The figures are provided from The Australia Institute after each quarter and relate to three cohorts of retirees – affluent, constrained and cash-strapped – for both couples and singles. Our latest annual expenditure estimates are as follows: affluent couple and single – $76,390 and $43,586; constrained couple and single – $43,972 and $24,313, and cash-strapped couple and single – $37,160 and $23,330.

The ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension.

Financial planner Gianna Thomson told The New Daily that paying off your mortgage and not having large credit-card debts were important steps prior to retirement.

“People underestimate how much they need in retirement and how long it has to last,” she said.

It is more likely that we will live into our eighties these days, so someone retiring at 65 must be assured of incomes from superannuation, the Age Pension or investments such as shares or property.

Ms Thomson says it’s worth considering how much you will need to fund your retirement before agreeing to help children with expenses such as home deposits.

Money educator and finance expert Vanessa Stoykov told news.com.au that older Australians need to act fast.

Saving for the future comes down to “now versus later”.

“Do I want the money now or do I save for later?” she said.

Ms Stoykov suggested to check your superannuation balance regularly with a super fund app.

“The more power people take into their super the better,” she said.

“Take care of yourself and don’t expect the government can.”

Are you resigned to a sizeable gap between what you need in retirement and what you have? Have you sought financial advice or wish you had in the lead-up to retirement?

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Related articles:
https://www.yourlifechoices.com.au/finance/superannuation/36-billion-sucked-from-super
https://www.yourlifechoices.com.au/finance/superannuation-survey-reveals-need-for-new-digital-tools
https://www.yourlifechoices.com.au/finance/superannuation/news-superannuation/november-a-strong-month-for-super

Written by Will Brodie

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