Article by Mark Bouris – SMH
Some of the numbers associated with retirement seem really big. Take the lump sum the average Australian couple will have to save in order to retire comfortably: $1 million. It seems like a lot of money, but it makes sense.
The Association of Superannuation Funds of Australia (ASFA) says an average couple will need about $56,000 a year to fund a comfortable retirement. ”Comfortable” in this case means you’ll have private health insurance, you’ll be able to get a decent car and good clothes, and you’ll be able to maintain your home, plus have some money for domestic and occasional overseas travel.
What it doesn’t include are the things a lot of people in retirement look forward to: helping their children with a deposit on a first home, taking multiple trips abroad, treating the grandkids to special gifts for birthdays and Christmases, and actually replacing that car a few times over the course of 20 years.
It also assumes you own your own home and you don’t have any housing costs except for general maintenance and repair. Finally, it doesn’t factor in that you might have a large unforeseen medical expense such as a hip replacement, which could cost you tens of thousands of dollars.
So if you factor in a few of these, in addition to allowing for cost of living increases at, say, 3 per cent per year, then you’re looking at a number that’s more like $65,000 a year for you and your spouse.
If you can rely on average investment returns of 5 per cent a year, then you’ll need a least $1 million to generate that $65,000 income each year in retirement.
So, what you need to do is work out how you’re going to do it, because even though it sounds like a lot, it’s obtainable. But you need to take control and you need to start planning early.
Trust me, I haven’t met a person in their 50s or 60s who hasn’t wished they started saving sooner. And if you think the compulsory super contributions are going to get you to the million-dollar mark, think again.
If you’re a 30 year-old earning $70,000 with a current super balance of $30,000, and you put in the compulsory 9 per cent over the next 35 years, you will retire at 65 with $330,000, which generates $21,500 a year for 22 years. Even if compulsory contributions are raised to 12 per cent, you won’t get there. The same person who invests 12 per cent over 35 years will end up with $420,000.
So set yourself a $1 million challenge and start taking control of your superannuation.
You now know your goal, so set yourself up with a solid plan and get help if you need it.