Superannuation is one of the main ways that Australians save for retirement.
Employees receive superannuation guarantee contributions. Employers are now meant to contribute 10.5% of wages to an employee's superannuation fund. Employees can also salary sacrifice more into their super fund.
Business owners can also make concessional contributions for themselves.
On top of that, people can add extra money into superannuation with non-concessional contributions.
When that money is in the superannuation fund, people can decide how they want that money to be invested such as ASX shares, international shares, cash and so on.
But, there's a question of how much people actually need to build up their retirement nest egg to be able to retire. Is it $1 million? Maybe $500,000?
Every personal circumstance is different. Is that person renting, or do they perhaps own their home outright with no mortgage? Do they live with a spouse who also has a sizeable retirement account? And so on. This is the sort of thing that financial planners can help with.
But, personal finance expert Scott Pape (AKA the Barefoot Investor), has shared in his latest weekly newsletter what the required superannuation balances could be for retirement.
Required retirement balance
After sharing a humorous story about visiting a (wealthy) men's group lunch and talking about retirement, Pape revealed research done by Super Consumers Australia, a partner of CHOICE, that uses Australian Bureau of Statistics (ABS) research on what retirees typically spend.
Super Consumers Australia suggest that, for a comfortable retirement, single people need $301,000 and couples need $402,000, assuming they don't pay rent or a mortgage. These balances are based on singles spending $44,000 annually and for couples, it is based on spending of $64,000.
That's a bit more than the median superannuation balance at retirement, according to the ABS, of $250,000 for men and $200,000 for women. But, it may be achievable for people with time.
For singles wanting to spend $55,000 a year, it was suggested they need $745,000, according to Super Consumers Australia. For couples wanting to spend $81,000 a year, they'd need around $1 million.
Pape suggests that people can get by with smaller retirement balances if they get the aged pension and do a bit of paid work.
Foolish takeaway
Of course, how much is contributed to superannuation is one part of the future retirement balance equation. There's also a question of how much time is given to grow the balance, and the size of the returns, to build towards retirement.
Hopefully, our investment portfolios can deliver good investment returns partly thanks to the power of compounding.
