Your Super Alone Will Not Be Enough for Retirement
Mar 31, 2016 - By Nicholas Scott Property Investments

The very notion that your super alone may not be enough for retirement can be scary—terrifying, even. But, for many it won’t be enough to live comfortably on.

Australians who are under the impression that $1 million will provide a comfortable nest egg upon retirement may be in for a rude awakening. While it might have at one time, in the current interest rate environment $1 million will provide roughly $1,300 a fortnight, which is about the same as the government pension.

Many individuals think about superannuation in terms of the lump sum payout as opposed to a reliable income stream, and when you look at it that way, the financial picture looks quite differently.

In today’s interest rate environment, the fair price for an age pension is roughly $1 million, however, with that amount a couple will get about $33,700 per year. For many, a comfortable retirement will cost much more.

Some argue that a $1 million nest egg will be plenty to live comfortably off of and that it all depends on living circumstances.

AFSA showed that couples could live comfortably off a lower amount of $500,000 in their retirement account, however, the low interest rate environment means this will not be enough in the future.

Almost half of the Australian population will agree that they haven’t adequately prepared for retirement or aren’t prepared at all.

According to HSBC’s Future of Retirement Report, many Australians believe their retirement will last 23 years, but it will run dry within 10 short years of finishing work.

16 percent of respondents believe they will never be able to fully retire, which is significantly higher than the global average of 10 percent.

When determining how much you need to have in your super or via a combination of your super and passive income streams in order to live comfortably, you’ll need to put a dollar amount to what living comfortably looks like for you. Then, work backwards to see how much additional money you need to contribute considering a low interest rate environment or whether you should look at other investment opportunities, such as investing in property. For many, super alone just isn’t going to cut it, even if contributions are increased.

The below standard will give you a rough estimate of what living a modest or comfortable retirement looks like according to the AFSA:

  • Couple – Modest : Annual living costs: $34,051; Weekly living costs: $653
  • Couple – Comfortable: Annual living costs: $58,784; Weekly living costs: $1,127
  • Single – Modest: Annual living costs: $23, 662; Weekly living costs: $454
  • Single – Comfortable: Annual living costs: $42,861; Weekly living costs: $822

In a low interest rate environment, investing in suburbs with high capital growth and yield potential can add an additional income stream to your retirement, so you can live comfortably.

Retirement savings deficiencies in Australia are a huge concern. Knowing now that you may need to take additional steps to save towards retirement is the first step. Take this concern to heart and take action.

Read our post, “Tax and Super Offsets: How to Make it Work For You,” to find out how super offsets might benefit you.

If you have questions about investment property or would like to speak to a qualified real estate professional about how investing in property could increase your retirement income, contact us.

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