For the vast majority of Australians, their superannuation savings are their chief source of financial security for retirement. And this is just as well — the Australian superannuation system was recognised by the 2014 Melbourne Mercer Global Pension Index as the second best in the entire world, behind Denmark's.
"Our jump from third to second ranking was primarily due to a significant improvement in the adequacy of our system as a result of increasing superannuation guarantee payments from nine percent to 9.5 percent over the last 16 months," explained the statement that accompanied the report.
Yet despite these added efforts to make Australians' super savings more robust, there's no guarantee that the amount saved up will be enough to provide adequate protection.
Concerns about the effectiveness of superannuation
Phil Ruthven, founder and executive chairman of IBISWorld, recently spoke to the Sydney Morning Herald about the state of Australians' finances, outlining the approximate cost of superannuation in Australia for a pleasant, reliable retirement.
"[A]lready our superannuation plus our other investments in financial terms needs to be worth more than the house. Indeed, twice as much," he told the paper.
In fact, as the cost of living steadily rises over time, there's a good chance even this amount will get more intimidating. In May of this year, the cost of retirement rose thanks to increases in pharmaceutical services (6.1 percent), automotive fuel (4.1 percent) and medical and hospital services (1.9 percent), according to the Association of Superannuation Funds of Australia (ASFA).
The specific cost of superannuation
Of course, there's no one specific cost of retirement — it depends on the length of your retirement, as well as your lifestyle and a host of unexpected, unpredictable conditions. This makes it difficult to determine exactly how much Australians need to save.
It is possible to use industry statistics to get a rough idea, however.
The industry benchmark for the cost of retirement is determined as 65 percent of pre-retirement income. Now, let's look at the life expectancy figures from the Australian Bureau of Statistics. Men born between 1985-87 are expected to live to 72.7; women born in the same period are tipped to live until 79.2
If we attach incomes to these individuals, and assume they will retire at 70, this is how much super they might need, at minimum:
- at $80,000 a year, for example (not much more than the OECD's average annual Australian wage of $77,691), they would need, $52,000 a year — or a $140,400 lump sum for a man, and $478,400 for a woman;
- at $50,000 a year, they would need $32,500 a year — or a lump sum of $87,750 or $299,000 for a man and woman respectively.
This is only amplified for those born more recently. Male and female millenials born between 2001-03 are set to live to 77.8 and 82.8 on average, respectively. This could put superannuation close to the millions.
To find out how much you might need for a comfortable retirement, visit ASIC's retirement planner, because no matter which way you slice it, planning for retirement savings is of the utmost importance.