The Super Debate: Do you have enough?

The forthcoming election and recent media frenzy over the Gillard government’s proposed changes to superannuation has reignited debate on what constitutes a reasonable amount to fund retirement.

The fact is, calculating the amount of super you need will be different for every household and depends on individual lifestyles. You need to factor in whether you have paid off your mortgage, plan to travel regularly, continue to work part-time or reduce your expenses by downsizing.

According to the Superannuation Funds of Australia (ASFA), a single person needs an income of about $40,500 per annum , while a couple need around $56,000. Calculations show that a super investment of about $500,000 (including a top-up from the government pension) will provide an income of around $54,000 per year.

Yet how do you define a “comfortable” lifestyle? Does this mean owning your own home, running a car, taking an interstate holiday once a year or eating out once a month? What is modest for one person is comfortable for the next. Again, these figures do not factor in expenses which cannot be anticipated, such as medical or aged care costs, and may not adequately allow for inflation. Assuming that the average man now has an anticipated life span of 83 and the average woman 87 years, the actual figure needed for retirement is difficult to quantify and may be more than anticipated.

The government has announced that from July 2014, earnings on super assets over $100,000 would be taxed at 15% per year, which affects those with $2 million in their super accounts (a very small proportion of the population). However, experts are now saying that even super accounts of less than $500,000 could be hit by the government’s proposed tax on earnings. Even a one-off transaction such as the sale of property or shares could push you over the threshold.

Critics of the proposed reforms also comment that it is very unfair for the government to penalise those who have worked hard to set aside money to fund their independent retirement, without relying on the government pension.

What is definitely concerning are new figures showing that fewer than 20% of Australia’s Baby Boomers (some 5.6 million people) have adequate superannuation and private insurance cover to fund health care in retirement[1].

There are no easy answers when it comes to the murky waters of the super debate. What is evident is that those contemplating retirement should definitely seek independent financial advice to plan for the best possible outcomes for their future.

photo credit: 401(K) 2013 via photopin cc