Nick Bruining: How much should you have in super before you retire? The answer is a lot less than you think

A recent visit to afternoon TV revealed the “million-dollar retirement myth” is still out there, being perpetuated by surprisingly young “experts” keen to see you tip more of your savings into whatever scheme or product they’re flogging. “You can’t retire unless you have at least a million dollars” — or words to that effect. And while there’s nothing wrong with having a seven-digit retirement nest egg, the fact is that many of these so-called experts conveniently miss a few key facts in all their assertions. Facts like the integration of our social security system with our savings in retirement, and that most retirees don’t have to worry about things like tax. Apparently, they also don’t know that most seniors qualify for hefty discounts on utilities, transport and other costs. What a sizeable asset base gives you, however, is arguably more choice — choice to retire earlier, choice to change over your car (probably more frequently than you need to) and choice to fly up at the pointy end of the plane when you travel. But to say that retirement with less than $1 million will require you to join the dumpster-diving brigade is rubbish. Assuming that, like many others, you’ve done the hard yards leading up to retirement, you probably own your home, the kids are off your hands and you are pretty much debt free. That means no mortgage, personal loans or other dead money payments which, let’s face it, are a huge impost on our pay-packets during our working lives. Expenses will broadly fall into the six categories of food, energy, maintenance, medical, transport and extras. Extras will be the semi-discretionary outlays like gifts and holidays. Everyone’s different, but the Association of Superannuation Funds of Australia reckons a modest retirement for a couple will cost about $47,000. A comfortable retirement is priced at $72,000. For a single, the range is between $33,000 and $51,000. Also remember that there are plenty of Aussies who get by on the pension alone. Sure, it is a basic lifestyle, but manageable. Let’s take a couple with a typical lifestyle that’s almost smack in the middle of the range with a figure of $60,000 a year. Let’s say that instead of $1m in savings, they have about $350,000, which is quite common. Indeed, it is substantially less than the “average” total amount of about $570,000 a working male and female couple would have. Of our available $350,000, we’ll plonk $330,000 into super leaving $20,000 in the bank. At this level, our couple can forget about means testing because they are under both the Centrelink income and asset test thresholds. That means a full age pension of a combined $43,752 a year. To that, we add our super fund that’s now been converted into an account-based pension paying the mandated 5 per cent — or $16,500 a year. That generates a grand total of $60,252 a year. All this with not a cent of tax to pay — and that’s also without factoring in those seniors discounts which can be worth thousands of dollars a year in savings. Significantly, generating 5 per cent a year means we can probably achieve this with a low-risk investment portfolio. When you conveniently ignore these little things like Centrelink in your calculations, generating the same $60,000 a year using a safe investment portfolio making 5 per cent a year, you would need to stump-up $1.2m. And guess what? At this level, $1.2m means you won’t qualify for any pension and there will be minimal government assistance. The figures for singles aren’t quite so good because the pension means testing system favours couples. Nonetheless, a single homeowner with the same $350,000 in savings will be on a total minimum income of just under $40,000 a year. But here’s the twist. Because they are likely to be asset-tested, their pension rises by $30 a fortnight for every $10,000 they get rid of until they get the maximum possible. That’s roughly $70,000 from the starting figure of $350,000. Bizarre as it seems, at this level they will be on an increased minimum income of about $42,500. That’s right, it goes up! So while we should all diligently squirrel and save as much as we can, remember that for many of us savings will simply increase the choices available as we approach retirement. And if you’re well under the $1m super balance and spooked, get some good, sensible advice. Realise that a comfortable retirement doesn’t mean you have to risk your savings on dodgy things like Bitcoin or a negatively geared property in a Queensland country town you’ve never heard of. Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association