Now that we know an investment growing at a compound rate of 7% a year will roughly double in value every ten years, imagine how your money will grow over 40 years or more. That's the simple but powerful concept behind super.
Assume, for example, you will need 65 per cent of your pre-retirement income, so if you earn $50,000 now, you might need $32,500 in retirement.
How much super you'll need in retirement depends on the lifestyle you want. According to the government's MoneySmart website, if you own your home, the rule of thumb is that you'll need two-thirds (67%) of your current income each year to maintain the same standard of living.
This obviously depends on what annual income you want to fund but if you want to be able to afford a comfortable retirement—which is an income of just over $48,000 a year for a single according to the ASFA Retirement Standard—then you need a balance of at least $500,000.
For many retirees with modest post-retirement spending plans, balanced investment strategies and full Social Security benefits, $500,000 may last the entire length of retirement.
ASFA estimates people who want a comfortable retirement need $690,000 for a couple, and $595,000 for a single person when they leave work, assuming they also receive a partial age pension from the federal government. For people who are happy to have a modest lifestyle, this figure is $100,000.
On the higher end, those organisations recommend individuals to save $545,000 to $745,000 in super by ages 65 to 67, for a comfortable or high-spending retirement. The only scenario where $1 million is set as the savings goal is for a high-spending couple in retirement.
Overall, retiring at 60 is doable with $500,000 but it may not be doable for you. It really depends on your personal living situation and what your potential expenses are going to be.
The balance in your superannuation account generally rises over time as you accumulate contributions from your employer. However, super fees and changing investment performance can lead to dips in your super balance.
See also our super fund monthly performance reckoner. It didn't seem possible a year ago, but despite ongoing market volatility and uncertainty the median Growth fund finished the 2023 financial year up a remarkable 9.2%. That easily made up for the previous year's 3.3% loss.
It would take $72,000 in total contributions, making $27,147 in total earned interest. Alternatively, if they choose assets that provide a 9% annual return, which is akin to more aggressive investment, they would need to invest $505 per month for ten years to accumulate $100,000 in total.
If you're single, you'll need more than $500,000, assuming you own your own home, according to the Association of Superannuation Funds of Australia Retirement Standard.
For example, some people choose to keep their super invested in their retirement years. This means it could potentially earn investment returns over the course of their retirement.
And, while life expectancy can be estimated, no one knows for certain how long they will live. As a result, they can only approximate how long their nest egg will need to last. Retiring at age 45 with $3 million is quite feasible if you already have the money and your post-retirement income needs are not excessive.
How long will $800,000 last in retirement? Your money is projected to last approximately 30 years with monthly withdrawals totaling $2,024,574. How long will $1,500,000 last in retirement? Your money is projected to stretch beyond 30 years and you'll be able to make monthly withdrawals beyond $4,000,000.
As a result, retiring at 50 with $2 million means initially living on $5,833 each month and then adjusting for inflation each year. Of course, you can withdraw a higher amount before age 62, but you might take away from your principal if your portfolio underperforms.
A helpful cost of living benchmark prepared quarterly by the Association of Superannuation Funds of Australia (ASFA), shows an average single person needs approximately $595,000 in superannuation before retiring, while a couple requires around $690,000.
Assuming you retire at the age of 60 and make it to 85 (fingers crossed you'll celebrate the 100 too!) that's 25 years to cover financially. With $2 million in the pocket, it comes to about $80,000 per year or $6,667 per month to spend.
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.
Retiring at 65 seems like a typical target, but it takes careful planning and a sufficient nest egg to pull off. If you accrue $2 million during your career, you can pay yourself $80,000 annually without touching your principal, which translates to a healthy monthly budget.