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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 30 years. She wrote for the Australian Financial Review and the Sydney Morning Herald, edited ASFA's Superfunds magazine and wrote the best-selling 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.

    • 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.

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