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.
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