How long will $700,000 in superannuation last in retirement?

What's the verdict?

| More on:
A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At the core of every Aussie's retirement goal lingers one overlord — superannuation. All of us want a comfy retirement. And super, like or not, plays a central role in achieving this.

But the world is changing. Interest rates. House prices. Wars. All potential negatives that have some US equity strategists projecting 3% annualised returns for the next decade in US markets. Not to be pessimistic.

And we can't overlook a basic economic fact: Inflation. The TV set that cost $500 10 years ago — and you paid $100 extra for the 'deluxe model' — doesn't cost $500 in today's dollars.

Inflation erodes purchasing power, in turn increasing the general cost of living over time.

So, how long will $700,000 in superannuation last? The answer depends on factors such as your lifestyle, investment returns, and eligibility for additional income. Let's take a closer look.

Super-duper statistics

The Association of Superannuation Funds of Australia (ASFA) suggests that $690,000 is enough for a couple to enjoy a comfortable retirement, while singles should aim for $595,000 in superannuation.

A comfortable lifestyle includes essentials like groceries, health insurance, and home repairs. But it also includes time for fun, hobbies/interests and the occasional travel.

According to ASFA, this equates to an annual spend of $73,337 for couples and $52,085 for singles. On a side note, it seems having a life partner costs an additional $21,000 in annual operating expenditures to live a comfy retirement. Something to keep in mind?

If we assume the 15-year average balanced fund return of 6-7% for superannuation in Australia and a 2.75% inflation rate, the numbers are satisfactory.

It does depend on when you plan to retire, but assuming you hang up the boots at 60, and earn 6-7%, and inflation runs at 2-3%, running the maths gives us the following outcomes for couples:

Assumes retirement at 60Required balanceRequired balance
Retirement expenseTo last 10 yearsTo last 30 years
$40,000$255,000$290,000
$50,000$340,000$485,000
$60,000$425,000$675,000
$70,000$510,000$930,000

So, if you have $700,000 invested in retirement and are earning this rate of return, this could last almost 30 years for a couple spending $60,000 annually. Give or take for higher annual spending, respectively.

Superannuation longevity

The longevity of your superannuation depends on a few key variables. Your planned annual expenses are the most significant factor.

Whether you aim for a lifestyle that costs $40,000 or $70,000 annually to maintain will drastically change how long your balance lasts. Simple math.

Investment returns also play a crucial role. Balanced funds, which allocate up to 60% to growth assets like shares in the S&P/ASX 200 index (ASX: XJO), have delivered average annualised returns of 5.8% over the past decade.

Superannuation funds biased to growth, where up to 80% of funds are invested in the stock market, have delivered returns of 7.2% per year, a 120 basis point advantage.

But when spread out on the table, it comes down to the combination of annual expenditures, long-term inflation and investment returns. You want the least of the first two and the highest of the third.

Is $700,000 enough?

Indeed, $700,000 is a solid benchmark for retirement savings. But far more importantly, your actual needs depend on your lifestyle and financial goals.

For those aiming for a modest retirement — defined by ASFA as requiring $47,731 annually for couples — $700,000 is likely to last well over 30 years, even without the aged pension.

However, if your retirement dreams include international travel or financial support for family members, you'll probably need more.

That's not meant to be daunting. Rather, it's meant to be informative so that you can apply it as best as possible.

The key takeaway is to plan early, monitor your superannuation balance regularly, and adjust your retirement strategy as needed. Working longer, reducing expenses, or optimising your investments can all help ensure your super lasts throughout retirement.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Superannuation

A happy elderly man wearing a red cape smiles as he jumps up like a hero from a massage table.
Retirement

How much superannuation do I need to retire in Australia?

The Australian Retirement Standard has just been updated. Here are the new numbers.

Read more »

Two retirees sitting on a bench together.
Superannuation

Is it better to take superannuation as a lump sum or income stream?

There are pros and cons to this important question.

Read more »

Woman at home saving money in a piggybank and smiling.
Superannuation

Here's the average superannuation balance at age 35 in Australia

How does your super measure up?

Read more »

A group of older people wearing super hero capes hold their fists in the air, about to take off.
Superannuation

What are the average superannuation returns in Australia over the last 10 years?

Important data for all savers to know.

Read more »

Superannuation written on a jar with Australian dollar notes.
Superannuation

Here's the average superannuation balance at age 55 in Australia

Where do you stack up?

Read more »

A couple calculate their budget and finances at home using laptop and calculator.
Superannuation

Is your superannuation on track for retiring at age 65?

Knowing the numbers can be a helpful guide.

Read more »

Portrait of a boy with the map of the world painted on his face.
Superannuation

Here's why more superannuation funds are investing in international shares and other overseas assets

Investment trends are shifting, says the Association of Superannuation Funds of Australia.

Read more »

A happy elderly man wearing a red cape smiles as he jumps up like a hero from a massage table.
Superannuation

Here's how much your superannuation has grown in 2024

Superannuation funds with high allocations to shares are delivering superior returns this year.

Read more »