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Why you only need $275k in super to retire

why you only need $275k in super retirement pension

Building up enough super for retirement may not be as daunting as it seems – you certainly don’t need the often quoted $1 million.

In fact, retirees with modest savings can be better off than those with more than twice as much.

The secret is to hit the “sweet spot”, where the return from your nest egg combines with the full age pension to fund a reasonable lifestyle.

For a home-owning single the magic savings figure is $275,000 and for a couple it’s $400,000.

We consulted the experts to show how it can be done.

There is a new dilemma facing Australians planning for retirement.

For the 80% who fund their retirement years with a combination of superannuation and the age pension, the rules introduced in January have some harsh consequences.

Combining the age pension with super is harder for home-owning couples with superannuation balances between $400,000 and $1 million.

This is because eligibility tapers off quite sharply. There is a no man’s land where your ability to access the age pension plunges and your superannuation income is not high enough to replace it.

What this means is that if you have modest savings you will get the age pension and do much better than someone with a lot more in super.

For example, a couple who have between $400,000 and $1 million will be worse off in terms of income than a couple with $400,000, because at that point they lose $3 a fortnight in the age pension for every $1000 above the threshold.

The optimum point – where your superannuation combines with the full age pension – is the retirement sweet spot.

The actual amount will come as a pleasant surprise for both singles and couples who thought their savings were inadequate.

The sweet spot is rarely talked about.

Financial planners are still coming to grips with the implications of the new assets test.

It could be discouraging for couples who have saved hard to get between $400,000 and $1 million.

The wider implications for the whole superannuation system are unclear at this stage.

Written by Susan Hely

Susan Hely

Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She’s also author of the best-selling book Women and Money.

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  1. These constant changes to people’s super is making retirement planning impossible or at least stressful for many.
    So this year the sweet spot maybe $275k, but what if next year it becomes $350k or $500k.
    Average people who have been working and saving for 30+ years aren’t able to make rapid corrections to their long term super in these sort of timeframes.
    Again the middle income workers are getting screwed.

  2. your right Basil, the problem with super is the Govt keeps changing the rules. However, what it does highlight is those approaching retirement in the next 2-5 years have a big decision to make if they have super balances between $250k and $700k. Makes a mockery of the reason we have super.

    • As a 40 year old with $379k combined super with my wife and currently maxing out our contributions, I cannot understand for the life of me why (if we hit $1m) we will be no better off than someone with $400k taking a pension. IT MAKES NO SENSE to me. If someone has $400k in super they should be using that first (with no pension) then when they get to a point (say $100k) then a pension should kick in!!

  3. This article is not quite right because the $400,000 must only be cash so you cant own a car or have any home furnishings which would be approx $20,000 to $30,000 thus dropping your money producing income down to $370,000 minus the obliquely 5% gives you $ 18,500 then the aged pension of $32,727 equals $51,227

  4. I agree Ben. But maybe make the figure a little higher than $100 k. Our taxes are subsidising those that rort the system. I know of people who are going to MAKE SURE they get a full pension by going on a spending spree before they are entitled to get the pension. It SO wrong.

  5. We are constantly reminded through our super and articles on funding retirement we need to “plan”. Then the rules change and the “plan” has become a trap. No one on wages can make short term corrections for years of saving according to the plan – so it is going to leave many short of money and lead to some making desperate decisions – like spending inappropriately to fit in with the new rules, and be able to claim a pension with all of its benefits. It seems like all the saving has been pointless and there are others who have the benefit of being able to claim a British pension and an Australian pension – while us born in Australia who have saved hard are being penalised. Its easy to see why some now take the attitude to spend it all and enjoy it and then claim a pension. Is this what the government wants as it seems contrary to all of their advice to plan and SAVE SAVE.

  6. I dont think people understand what is happening here, we are told to plan for retirement and make sure we have a considerable amount saved for retirement & then the rules keep changing. These puppets in Gov’t need to really have a good look at themselves & try to understand that people have had enough of their crap rules. We try & do the right thing and get penalised, no wonder people are rorting the system they have no choice with these puppets. Why dont they ask Paul Keating for some advise on what to do, he was the only one who had some vision & brains for future savings for the worker. This Gov’t needs to be all thrown out & start fresh.

  7. Before acting on this article stating that “you only need $275k in super to retire” always remember that the government can at any time make the income and assets test more onerous thus excluding even more people from qualifying for a full or part old age pension. In other words the full or part pension is not guaranteed (and neither are the returns on Super). You need to make provision for the possibility of the loss of a full or part pension and an extended period of below average returns on Super. The next stock market crash may be greater than the 56% fall during the GFC and may last longer than the 17 months of the GFC. The USA market took 25 years before it went above the 1929 highs.

  8. Well I won’t be relying on super and the pension to fund my retirement! A quarter of my retirement income will come from the super, 3/4 will come from my property income. Who knows even in 20 years time whether if be eligible for a pension. I’ve taken matters into my own hands. What’s with this entitlement mentality. Find your own retirement!

  9. I think just be flexible and do what you have to do to survive and be comfortable. If people who have not worked a day in their lives are going to be qualifying for a pension regardless, then all you have to do is find that sweet spot that will benefit you. Spend your super until you hit $400K as couple (the sweet spot) Thats the way to go.!!

  10. Well, my husband & I are about to put it to the test. He’s finishing work in 2 weeks, when he turns 60. We have a total of $350k in super & savings, which we’ll be using until I start getting the pension in less than 2 years. In the meantime, our money will be earning interest at 2,5% in a bank a/c. We’ve done the figures (repeatedly) & know that we can live quite comfortably on under $35k pa, so when I start receiving the pension, we’ll have used around $70k of our savings & will have around $280k remaining. After my pension starts, we’ll only need to use around $15k-$20kpa of our own funds to maintain our current lifestyle. In 7 yrs, my husband will get the pension too & by this stage, we’ll still have a nice little nest egg of around $140k+…..this does not include the interest our money will have earned over the years, which will be a considerable bonus to our funds. We expect our money to help us along until we’re well into our 80’s, but in the meantime, we’re going to enjoy our life as a retired couple, before we’re too old.

      • What a load of crap all of this is. The only retirement sweetspot is when you become an a**hole politian for however many years you need to in order to retire on a fully funded government pension for the rest of your life.
        I really wish money mag would get out into society and amongst actual aged pensioners and sit with a whole heap of people over a period of time and watch how hard life actually is for most of them, especially before writing and publishing a half baked emotionless article with a partially positive overtone for selective people, and causing worry for others.

        I’d really like to read something decent where the writers have actually got out there to experience real life so that they could report back with something real and actually have some decent advice for a change. Go and find the wives or husbands who have lost their other halves and are living in dilapitated houses that need repair but unfortunately don’t have enough savings
        to do so. Find and talk to the generation who don’t have any super because it wasnt mandatory and they were the generation that started their own businesses and backed themselves hoping to make enough money to be able to live, pay off their mortgages and then save and self fund their own retirement. Or speak with the ones that had all their super taken away in fees before the govt introduced the $250k guarantee. Perhaps you might even come across the poor old sick ones who battled their whole lives to support their growing families but who might be tied into partnerships with 1 or 2 brothers or sisters over land- where they are not able to come to agreements with one another to sell up, or if they do, perhaps money mag could then sit there observing how quickly centrelink swoop in to cancel their pensions because finally they were able to top up their dwindling savings accounts which started off at a 5% interest earning account and they now are lucky to find a bank to offer them 1% plus a bonus .7% if they set up an online savings maximiser for 6mths (even though they don’t know what “online” means and don’t know how to do anything with a mobile phone but call their sons number that they have memorized by heart because they don’t understand how to navigate a phone menu, nor do they understand why centrelink continue to deem them as earning over 3% interest).
        Sit there and observe the stress and turmoil and helplessness some of the poor aged pensioners endure when their health care card is ripped up because of trivial details that some idiot centrelink employee misunderstood or chose to enter into their system in a way that purposely penalises a pensioner (Or had no choice but to process a certain way due to the way their computer program has been knowingly and purposely pogrammed to operate) and watch as they -spend the next 6 months burning through what is supposed to be within their allowable cash assets limit, but which theyre now having to pay in excess of $200 a month for all their ongoing medicines they are prescribed in order to manage heart problems, blood pressure, chronic pain, cholesterol, reflux etc etc.

        Perhaps after observing all the real life crap that a lot of pensioners actually go through- someone might be able to write an article with some decent frigging advice or instructions to follow that will help us get ahead or even just into a comfortable financial place? This article is puss, and unfortunately it appears that nearly everything else I’ve been reading on this site while I desperately search for clues or advice to assist my own aging parents with knowledge- has turned out to be complete nonsense reading as well. Why bother even writing this?

        • Hi Liz, you sound really upset by this. Are you looking for some specific advice for your parents circumstances?

          Centrelink is a maze to navigate, but if you book an appointment in advance, and have all the relevant details and a full financial picture to hand they can be really helpful in applying for the right benefits.

          Do your parents own their own home? If they do, there are many options available to them, even if they don’t have other assets.

    • You sound like you work for the government judi b. Also perhaps you might not have children u wanted to leave anyhing to either.
      Somehow u have got through life so far and to your credit you’ve managed to be so positive and stay positive. I wish I could think more like that.
      My first thought was:
      What happens if you or your husband have a stroke or something and have to end up in an aged care facility or needing some expensive care? What happens if something really emotionally and financially detrimental happens?
      I hope you have a plan B because if you think the government will look after you or centrelink will be helpful in the event of the worst happening you will be in for an awful shock I’m afraid.
      I hope for your sake that everything pans out as well as you have calculated.

  11. Steve.
    Why did no one reply to “h” 22 July 17. What if you do not own your own home.? Either single or married. How much do you need then?

  12. The thing to remember with the sweet spot example is that the pension doesn’t start till 65(now changed to 67yrs) and what if its changed again to 70!

    If you are able too, keep saving and planning your own retirement don’t rely on the govt. but if you do get to 1 mill by 50-55 just retire then, spend 50k a year enjoy more yrs of retirement and now your at the sweet spot.

    Forget the cruise and kitchen upgrade use the savings for a much earlier retirement. FIRE.

    • Yes exactly my thinking too. Save as much as you can and then use that to retire early. Who the hell actually wants to retire at 67? If you wanted to you could retire early then run down your savings until you hit the sweet spot at 67 and qualify for the full aged pension. Personally I do not want to have to rely on the govt at all as I don’t trust Centrelink.

  13. Still waiting to see reply to “Steve” and “h” – what if you don’t own your own home – single or partnered???

    • A single who doesn’t own their own home can have up to $465,000 in total assets & still receive the full pension . (As of 2019)
      Non home owning couples can have up to $594,500.

      In answer to Liz’s question regarding Judi’s plan B,
      Liz is correct, Centrelink will not help you until you are virtually penny less.
      The system is designed as a safety net only.
      The best you can do is try to stay fit/healthy & take out some insurance which is expensive as we age.
      But fair play to Judi… why not enjoy life why you can & retire early although from what I can see some what frugally too.
      My plan ( I’m 56 now) is to continue working & pump my super up.
      I may not end up any better off than being in the so called “sweet spot” but at least I will have choices.
      Plus working gives me a purpose/ keeps me fit & keeps me socially engaged which is great (as long as you mostly enjoy your job).
      But I will make sure that I enjoy every day along the way and have lots of nice holidays as non of us know what the future holds do we.

  14. I’m in my thirty’s how can I get my money out before this thing crashes? I’m not going to get a pension nor do I want one. I want to be financially free and not have to worry about the government telling me what I can and can’t do with my money.

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