Superannuation savings don’t need to be as large as many think

Many people nearing retirement are over-estimating how much money they believe they will need to live well. Here’s why.

Many seniors over-estimate how much money they need to retire well. Picture: iStock

Pre-retirees think they need a nest egg above $850,000, but the reality is they can live comfortably on much less than that.

New research by investment service Generation Life has found nine out of 10 people feel under financial pressure and many believe their financial dreams are out of reach.

The new report, Not Tomorrow’s Problem, says most pre-retirees – aged 51 to 65 – pay little attention to their superannuation, leading to a lack of knowledge and fear of the unknown.

The average amount they think they need to retire is $856,209, it says, and three-quarters feel unable to achieve a happy retirement.

However, finance specialists say many set their sights unnecessarily high and may end up working years longer than they need to because of incorrect expectations.

Generation Life’s Grant Hackett says advice is valuable, as even sporting greats have coaches.

The Association of Superannuation Funds of Australia’s widely recognised ASFA Retirement Standard says a single person needs $595,000 at age 67 for a comfortable retirement delivering $52,085 a year, while a couple needs a combined $690,000 – or $345,000 each – to provide $73,337 annually.

Generation Life chief executive Grant Hackett said many people saw the ASFA calculations as minimal living standards rather than comfortable.

“Most Australians – we’re an aspiring population, that’s why we always punch above our weight – want to live above that, but they’ve probably gone too far,” he said.

Mr Hackett said the $850,000-plus figure was “probably driven by the last couple of years when inflation’s gone bananas post-Covid”.

“A lot of people think they need a much larger amount because of the sustained price increases that we have seen for everyday items,” he said.

“It’s pretty phenomenal when you think we have got the fourth-biggest pension pool in the world, for a country of 28 million people, yet three-quarters of us going into retirement are really concerned about it and think they’re not prepared for it.”

MBA Financial Strategists director Darren James said the high $850,000 figure could put people off retirement planning.

“I think that’s probably basing it on them not getting any Age Pension, whereas obviously a lot of people can,” he said. “Some people get scared, throw their hands up in the air and say it’s all too hard. We’re seeing people able to set up retirement quite well on far less than that.”

Mr James said some people mistakenly believed they would need their current pre-tax earnings in retirement, but most retirees paid no tax, had no dependent children and low or no debt.

“The other misconception out there is people think retirement age is 67, the Age Pension age, when it’s not,” he said.

People can access their superannuation from age 60. “To be honest, retirement is when you want it to be, as long as you have financing to do it,” Mr James said.

The Generation Life research found two in five people aimed to retire before 65, and author and retirement educator Bec Wilson said many would be able to “thanks to the power of superannuation, which is now 32 years strong”.

Bec Wilson, retirement educator and author of Epic Retirement. Picture: Supplied

“Advisers can guide on things like super strategies, tax tweaks and investment options but also on bigger life choices – whether it’s thinking about downsizing, going part time or kicking off a second-act career,” she said.

“Not everyone requires in-depth advice – some, in simpler situations, just need clear guidance they can trust on how to proceed.”

Generation Life’s Mr Hackett said the research found that people who received financial advice were twice as happy.

“A lot of people don’t go and do all the travel and the bucket list things they want to do because they’re worried that they’re going to live too long, so they hoard their savings in that first half of retirement,” he said.

“Problem is you get to the second half of retirement and you’re too old to do a lot of those things.”

Originally published as Superannuation savings don’t need to be as large as many think