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How much is enough when it comes to superannuation?

Love it or hate it, the Aussie superannuation system remains the foundation of our retirement system as the Federal Government looks to reduce its pension obligations in the decades to come.

Despite the regulatory and liquidity risks inherent in super, your super fund can give you a great leg up when investing given its tax-advantaged status.

This means that your buy-and-hold Afterpay Touch Group Ltd (ASX: APT) investment can generate even better after-tax returns than it would if it sat outside of a superannuation account.

But with all the rules, regulations and commentary, how can you know how much super is enough in 2019?

Calculating your superannuation

The first step as with any personal finance decision is to do your own thorough research and talk to a qualified financial advisor about your situation.

While superannuation does have some great benefits, locking up too much of your money until the preservation age (currently 60) can be daunting and may not be the best financial decision depending on your age.

As a general rule, the closer you get to retirement the higher the percentage of your investments that should be allocated towards superannuation rather than your own investment portfolio.

Personally, I find it easier to try and calculate a figure for how much I might need in retirement on an inflation-adjusted basis, apply an historical rate of return from the ASX and work backwards from there.

By doing a quick “back of the envelope” calculation, Fools can gain a general idea of what their ideal retirement balance is and then breakdown their required contributions from there.

Most super balances aren’t that high

According to 2018 data from the Australian Bureau of Statistics (ABS), the average Aussie super balance for individuals aged 25 to 34 are around $38,000 for men and $32,000 for women.

Even when approaching retirement (55 to 64 years old), the ABS says the average super balance for men is $310,000 and $196,000 for women.

If we were to assume what’s considered a “safe” withdrawal rate from those balances of around 3% per year, that would provide a yearly pre-tax income of $9,000 for men and $4,800 for women in retirement.

How to boost your super balance

While the main source of superannuation funds for most Australians is the 9.5% per annum Superannuation Guarantee from employers, it is possible to boost your super balance on your own.

If you have the cash to spare, you can contribute up to $25,000 per annum in before-tax contributions while there are special rules for those approaching retirement to also increase their retirement nest-egg.

And the best bit? Once you sort out your superannuation plan, you can get back to investing in the likes of Commonwealth Bank of Australia Ltd (ASX: CBA) or Appen Ltd (ASX: APX) knowing your retirement balance is looking a little bit healthier.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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