How does your superannuation stack up with retirement needs?

Checking whether your superannuation balance is big enough should continue long after stopping work. Here’s what you need on based on your age, and why set-and-forget is dangerous.

Bad investment timing risks breaking a retirement nest egg. Picture: iStock

Superannuation fund savings are at risk of running out for retirees who leave their nest eggs on autopilot, new research suggests.

A study by investment group Colonial First State has found that one-in-three Aussies in early retirement treat their super as set-and-forget, a potentially dangerous move, especially with share markets near record highs.

It says the early years of retirement – up to age 74 – are a risky time to be disengaged with super because a sudden sharp fall in asset values – such as a share market crash – could dramatically increase the chances of super not going the distance.

Colonial First State head of technical services Craig Day said this was known as sequencing risk and could mean two retirees receiving the same average annual returns over decades could experience “very different overall outcomes” in super assets and income.

“A run of negative returns early in retirement could have a very damaging impact on the amount of income we are able to generate through retirement,” he said.

However, this did not mean people should switch all their super to conservative assets such as cash, which typically delivered lower long-term returns, Mr Day said.

“People retiring at age 67 still have an average life expectancy of approximately 20 years,” he said.

“That’s still a long investment horizon and if your retirement savings are just earning bank interest, it could mean they don’t end up lasting as long as you do.”

About 2.5 million Australians are expected to retire over the next decade, doubling the number of retirees with super. And with stockmarkets at record highs despite economic volatility, today’s super balances could be the biggest retirees will ever have, as they draw down money each year.

The Association of Superannuation Funds of Australia says a single person needs $595,000 in super at age 67 to generate a comfortable retirement income using super and a part age pension. Couples require $690,000 between them.

ASFA’s super balance detective tool says to retire comfortably a 30-year-old today should have $66,500 in their super now, while a 40-year-old should have $168,000, s 50-year-old $296,000 and a 60-year-old $469,000.

Perks Private Wealth senior adviser Samuel Garreffa said running out of retirement savings was a common client concern, regardless of wealth.

“Whether they’re worried about relying on the age pension or have accumulated millions, the anxiety about outliving their superannuation is universal,” he said.

“The uncertainty around what constitutes ‘enough’ for retirement is common, particularly when factoring in inflation and how much can be safely withdrawn without depleting the balance too quickly.

“Miscalculating this could result in the undesirable need to return to work or a reduction in quality of life during retirement.”

Mr Garreffa said retirees could prolong the life of their super by checking whether it was working hard enough for them and whether they were drawing down too heavily.

Pension entitlements could increase as super decreased, he said adding that a couple could hold more than $1 million of assets and still get a part pension;

Colonial First State’s Mr Day said the best way to avoid running out of super was to understand the retirement you wanted, its likely cost and investment risks.

Other strategies included leaving 3-4 years of income needs in cash and the rest in growth-focused assets, or purchasing guaranteed lifetime income streams, he said. The CFS research involved more than 2000 people.

Originally published as How does your superannuation stack up with retirement needs?