How Much Super Do You Really Need to Retire?

Added: 2026-05-24

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[00:00:36]All right, Shani, so you've had an exciting week.

[00:00:39]Have I? Somebody tried to break in your house.

[00:00:41]>> Yes. Well, this is the third time this has happened to me, so Yes, it was raining on the morning of the break-in.

[00:00:48]And your ring camera captured the guy.

[00:00:51]He had an umbrella.

[00:00:52]>> He did.

[00:00:53]>> So, and as you said, he didn't want to the truck water through my house when he came in. So, very considerate.

[00:00:58]>> So, if the man with the umbrella who tried [laughter] to break into Shani's house is listening, could you stop doing that?

[00:01:04]>> Yes. So, today we are going to talk about the changing environment we're in and why it may mean that there's factors you haven't considered when you've estimated how much super you need in retirement. So, we're going to run through how you know you have enough super. And that's a really tricky question to answer. Yeah. The reason people know that we don't have enough super is because we're sitting here.

[00:01:29]Yeah.

[00:01:29]>> [laughter] >> Um I bet you that guy that broke into your house or tried to break into your house did not have enough super. You're making a lot of assumptions, Mark. I I am making a lot of assumptions. I'm sorry for being judgmental. So, It could be that he just hasn't reached his preservation age yet and needs something to tide him over. You do need some assets if you're [clears throat] trying to retire early. You need those bridge assets to get you to preservation.

[00:01:52]>> house, apparently. So, Exactly. I've been in your house. I don't know what he was going to [laughter] steal. But, um, but anyway, let's get back to super real scenarios. None of us know how long we're going to live. None of us know how the market's going to perform until and then through retirement, and none of us know the order or sequence of returns that are going to happen. So, we don't know if we're going to have costly chronic illnesses or how inflation's going to impact the cost of goods and services. But, none of this means that we shouldn't try to be as accurate as possible in estimating what we need for retirement. This allows us to plan towards a goal and adjust when we receive more information that clarifies our path. And in the current environment, there's more variables that can impact retirement outcomes, and the traditional standards might not be applicable. So, we're going to go through some of the extra things to consider, as well as some of the most common measures that investors use to estimate how much they need for retirement, and why you might need to do a customized approach instead. So, why don't we start with how retirement has changed and why you're likely to need need more than you think. Okay, this doesn't apply to me, but the first is that in general, people are living longer.

[00:03:07]Many people are retired for the same duration that they're in the workforce.

[00:03:12]And longer retirements mean that unfortunately, you generally have more chronic illness, and that can require costly specialist appointments and care.

[00:03:24]So, what this results in is that retirement costs more and lasts longer.

[00:03:31]And then, the next one is optional. It's an early retirement. You might want to retire earlier than 65. Your super balance is locked away until your preservation age, which is 60 for the majority of us. If you want to retire at 50, you're going to need savings outside of your superannuation. Instead of focusing on superannuation as your plan, instead see it as one tool to support your retirement. Yeah, something people may have noticed there's a lot of inflation right now.

[00:03:56]So, inflation, of course, reduces the purchasing power of your money. If you think a million dollars is enough for you to retire in 2026, the equivalent spending power would be 610,000 in today's dollars in 20 years. And that's assuming a 2.5% inflation rate, which we have seen much higher inflation recently. So, if high inflation continues, today's dollars will be worth less and you'll need more. And we have sequencing risk. You might have a plan that needs to get you to 7% per annum, but you're not going to get to 7% per annum each and every year. Some years you might get 3%, other years you might get 10%. The sequence of these returns is going to drastically impact your outcomes. And this isn't something that you can control. You can't control the level and order of your market returns, but you can control your additional investments into super and your asset allocation. So, focus on what you can control and we'll speak a little bit more about this.

[00:04:52]Okay. Then there's, of course, lifestyle. And you may save and sacrifice for a leisurely retirement.

[00:05:00]You may want to travel, you may want to take up hobbies, and all of this could potentially, at least initially, add to your spending.

[00:05:09]So, you also could do things to free up some money. So, you could downsize, you could move to a cheaper location. So, key part of your retirement plan and how much it's going to cost is how you envision your golden years. So, have a good think about what you want and what those years are actually going to look like. And a common impact to retirement is career breaks or reduced work. You may need to account for career breaks for raising kids or taking care of elderly parents or reduced work hours that will require additional savings.

[00:05:41]So, don't forget to include likely scenarios in your planning.

[00:05:44]And then there's the big one. If people have not noticed, there's a bit of a housing crisis going on in Australia, which means that more people are not owning their own home in retirement, or they retire with a mortgage. So, many of the industry standards that people turn to and the guidance they turn to for retirement savings assumes that you own your own home and own that home outright. So, with, as I said, housing affordability affordability as a national issue, many Australians are retiring as renters, like I will, or still making all of those mortgage payments. And so, Shani, you wrote an article about what to do in retirement if that's the case. So, we'll put that in the show notes. So, check out Shani's article, and we did a podcast episode on it. I assume every listener listens to every episode, but in case you missed one, maybe you were in the hospital, something else, >> [laughter] >> breaking into Shani's house, you couldn't listen to that one, go back and listen to that. And um as I said, those will all all those resources will be in the show notes. So, those are some of the ways that are changing what you need in retirement. So, let's move on to common ways that we measure what we need in retirement, and why these rules of thumb might not be right for you.

[00:07:00]So, the first approach that a lot of people take is kind of the finger in the air approach. And that is just pulling a round number out of the air. And you hear a lot of people say that you need a million dollars and owning your own home. So, that's not really based on anything, but that is a common yardstick. Then there's looking at the average balance for their age and using that as a guide. So, at my age, that is $44,053 according to the Association of Superannuation Funds. And many people think they are fine as long as they keep up with this age-based bracket amount as they age. Women are retiring with $380,000 on average, and that is a relatively low balance to provide for you for 40 or so years.

[00:07:43]And then you can look at what the industry says. So, ASFA retirement standards say a comfortable retirement can be achieved with $630,000 for a single person who owns their own home. And one last option is to look at current spending and use that as a guide. A Vanguard study has revealed that millennials estimate they will need $100,000 of income in retirement. A common rule of thumb is saving 25 times that estimated annual expenditure, so that puts you at 2 and 1/2 million dollars. Is that your estimate, Shani, as a millennial?

[00:08:17]We did a presentation to a group of year 12 students. We did. And >> Coolum State High School. Yeah, which was a great opportunity. We were They're up in the Gold Coast. We were on Zoom.

[00:08:30]And we >> There are a lot of very cool kids in this class.

[00:08:33]Yes, much cooler than the two of us, at least me. At least me.

[00:08:37]Um but uh somebody asked about your retirement, and I was surprised to hear you say that you plan to work till you're 65. Yeah, why were you surprised?

[00:08:47]Well, I work with you every day. It doesn't look like you're excited. So, I was a little bit surprised. All right, so we've got We've gone through a lot of different options there that people use to try to ballpark retirement. So, the question is which one is it?

[00:09:01]Is it a million dollars? Is it $380,000?

[00:09:04]$630,000?

[00:09:06]2.5 million? So, obviously a lot of variability between those different estimates, and they can't all be right or any of them be right for all of us. So, there are issues with each one of those if you just put them through a sense check. So, what you want to do is you want to take your circumstances into account, and none of those methods do that. So, most of these measures likely meaningfully underestimate what many people will need for a comfortable retirement. And comparison can also leave you discouraged and confused as you look at different measures of retirement progress. The purpose of measuring what you need in retirement is to give you an actionable goal that informs your decision-making. This goal can be adjusted as your circumstances in retirement become clearer. The important thing is that it is specific to you and not based on measures that have nothing to do with your actual spending needs.

[00:10:01]PocketSmith directly connects to your accounts, so there's no money It offers cash flow forecasts so you can probably plan and transparency to make better decisions.

[00:10:11]We've been using it ourselves, and what stands out is how it brings everything together in one place. You can see your spending, your income, your investments, and it gives [music] you a proper view of your net worth. If you're trying to get a clearer picture of your finances alongside your investing, PocketSmith has [music] a special deal for Investing Compass listeners. Get 50% off your first 2 months of PocketSmith's Foundation or Flourish plans. To get your deal, go to pocketsmith.com/investingcompass or find the link in the podcast notes.

[00:10:52]All right, so the question then is how do you come up with a guideline um to get a reasonable number for your own circumstances. So, sometimes it's worth working backwards with a focus on what you can control. So, start with a life you want in retirement instead of just this arbitrary balance. What does a typical week look like? Are you traveling, dining out regularly, supporting family, or are you living more simply?

[00:11:19]Do you have a mortgage? Are you renting?

[00:11:22]Have you transitioned fully out of work?

[00:11:24]So, from there, translate that spending figure into today's dollars. One factor you may not need to account for is tax as many retirees pay lower tax rates in retirement. You also no longer need to account for super or retirement savings.

[00:11:38]So, this number becomes the foundation of your plan.

[00:11:41]Next, you need to think about inflation and how long your retirement may last.

[00:11:47]So, there are some tools that allow you to estimate your life expectancy based on your lifestyle factors.

[00:11:54]I did do this and it said I was going to live to 102. It said I was going to live until 104. I'll be very tired. It's a very long time. You're very tired now.

[00:12:02]>> I know.

[00:12:03]And I I was accurate, you know, when they ask about those lifestyle things. I picked frequently for the drinking part.

[00:12:09]>> Cuz you lie to your doctor about that.

[00:12:11]Everyone lies to their doctor about that. But, I did not lie to this tool.

[00:12:15]But, yeah. So, Shani thought I would die at 45 and this says 102.

[00:12:20]There you go. That's a big That's a big difference. So, anyway, Shani's article does have a link to this tool that clearly made up how long both of us will live, but maybe you can find a better one. So, doing this though can provide you with a more accurate estimate than just looking at the average life expectancy, which unfortunately is pulled down by people that die younger.

[00:12:46]So, one example, so the National Seniors, that's the one that you came up with.

[00:12:51]So, that is the link that's in Shani's article. So, think about when you want to retire, then obviously see how long that retirement period is. And also, of course, if you are going to retire early, you do need to bridge that gap as we jokingly talked about with the guy trying to break into Shani's house.

[00:13:10]Uh but, then you need to stress test your assumptions. So, we've done an episode before on Monte Carlo simulations. It's a tool to increase certainty in your retirement. But, what happens if markets underperform early in retirement or you take time out of the workforce? What happens if your expenses are higher than expected due to illness?

[00:13:27]You're not able to predict everything, but you can build flexibility into your plan. And then from there, you can make decisions that actually move the needle.

[00:13:36]So, once you have a goal, you can explore how much to contribute, how much to invest, what trade-offs you're willing to make today to try to match up your dream retirement with what's actually feasible for you to get to.

[00:13:51]We're not going to go through that detailed process today, but you can find it in Shani's article. There's a link to our detailed guide come up with a number that takes your circumstances into account. So, use that in conjunction with some of the changes in retirement planning based on the changes in the world that we've outlined today, and hopefully you can come up with a more accurate view of your retirement needs.

[00:14:15]All right. So, what are the next steps?

[00:14:17]You'll likely have a number in your head for what you need for retirement or the amount that you should have saved now.

[00:14:22]Compare it to the number that you get at the end of this process. Estimate your annual spending in retirement considering the factors that you think are applicable to you out of the ones that we listed, and then build in that buffer for flexibility.

[00:14:35]And then do what most Aussies admit that they don't do every year, and that's log into your super account and check your super balance. So, very simply use a calculator such as MoneySmart has some great calculators to figure out where you're heading, so where that super balance is likely to grow to.

[00:14:56]And then if you're not on track, you can identify the ways that you can get closer to your goal. So, that might be adjusting your asset allocation, more growth assets, it could be increasing your contributions, it could be building savings outside of super. Lastly, review as circumstances change. Over a timeline of decades, you're going to need to adjust and monitor to make sure you're on track to get to your goals.

[00:15:19]And And important remembering there's a lot of uncertainty with retirement, which is why it's such a challenging financial problem. But that is not a reason to avoid having at least a rough plan. So if you do have this rough plan and you can review it regularly, you can refine it over time, that is far more powerful than just chasing a number that was never designed for you or your circumstances.

[00:15:47]>> Yeah, you need to build a system that gives you the best chance of funding the life you want in a new environment.

[00:15:53]All right, thank you very much for listening and if anyone is concerned about Shani and the person breaking into her house, it would make her happy and feel safer if you left a review for our book Invest Your Way on Amazon or Goodreads.

[00:16:08]>> Emotional security. Emotional >> [laughter] >> No physical security, but emotional security is great. Thank you for listening.

[00:16:20]This video has been prepared for clients of Morningstar Australia Proprietary Limited and all New Zealand wholesale clients of Morningstar Research Limited.

[00:16:28]Any general advice has been provided without reference to your financial objectives, situation, or needs.

[00:16:34]You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest.

[00:16:41]To obtain advice for your own situation, contact a financial advisor.