Superannuation: what percentage of your income should you save for your retirement?

June 2nd, 2010 | Consumer News, Financial Planning News

Superannuation is one of the most tax-effective ways of saving for retirement.  But it is important to ensure that you save enough money to live comfortably. For most people, after their home, superannuation will be the largest asset they have once they finish work.

I am sure you have read numerous articles about how the compulsory employer superannuation contributions of 9% will not be enough to fund a comfortable retirement, while this is certainly true, the real question is how much do you really need?

The main points to consider include:

  • The lifestyle you would like to have in retirement
  • How long you need your savings to last in retirement

Most people in retirement want to maintain a lifestyle as close as possible to the lifestyle they are enjoying during their working lives.  Ideally, by retirement, the home will be paid off and the children will be financially independent.  By preparing a budget based on current expenses, less mortgage payments, assistance to dependents and any work related expenses, you should have a rough idea of what your lifestyle costs will be in retirement.

The table below illustrates what percentage of your salary you need to invest into your superannuation, depending upon what percentage of your current income you want to receive in retirement.

For example, assuming you have no major assets outside of super, if you plan to retire in 15 years time, you will need to invest 30% of your current salary until retirement, if you wish to receive 50% of your current salary as income in retirement.

Years to retirement Income wanted at retirement as a % of final salary
  40% 50% 60% 70%
40 6% 8% 9% 11%
35 7% 9% 11% 14%
30 10% 12% 14% 18%
25 12% 16% 19% 23%
20 17% 21% 25% 32%
15 24% 30% 37% 46%
10 40% 49% 59% 74%
5 85% 107% 128%  

Note: Assumes net investment returns of 3% above salary growth, and life expectancy of 14 years after retirement

The table below shows the savings you need to have accumulated at retirement to maintain an income stream of $40,000 per year.

Retirement Age Estimated Savings Required
Age 55 $760,000
Age 60 $680,000
Age 65 $560,000

To maintain a retirement income of $60,000 per year, you will require the following estimated savings.

Retirement Age Estimated Savings Required
Age 55 $1,140,000
Age 60 $1,020,000
Age 65 $  840,000

Clearly, the earlier you retire the more money you will require for your retirement.  Likewise, the higher your standard of living the more investment assets you will need to accumulate prior to your retirement.

Quinn Financial Planning specialises in providing unbiased superannuation investment and taxation advice on all superannuation funds, including self managed super funds. We have the experience, expertise, and flexibility to ensure that you have in place the appropriate strategies to help you reach your retirement goals.

For advice about superannuation strategies that are right for you and to get the best chance at the lifestyle you want, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.