When it comes to superannuation, it is better to have too much than too little when retirement time arrives.
But how much super is enough?
According to the Association of Superannuation Funds of Australia (ASFA), it estimates that a single person can enjoy a comfortable retirement lifestyle on around $52,000 a year, while a couple would need approximately $73,000 in total to maintain the same standard of living.
ASFA describes a comfortable retirement lifestyle as the following:
The comfortable retirement standard allows retirees to maintain a good standard of living in their post work years. It accounts for daily essentials, such as groceries, transport and home repairs, as well as private health insurance, a range of exercise and leisure activities and the occasional restaurant meal. Importantly it enables retirees to remain connected to family and friends virtually – through technology, and in person with an annual domestic trip and an international trip once every seven years.
But let's imagine that you are single and want a little more from your lifestyle. Perhaps one or two international trips each year and sitting at the pointy end of one of the Qantas Airways Ltd (ASX: QAN) Boeing 787 Dreamliners.
For this, a retirement income of $65,000 a year is arguably going to be required.
How much super will you need when you retire to generate this level of income each year? Let's run some numbers.
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$65,000 a year from superannuation
At present, the retirement age in Australia is 67 years old.
So, if you are wanting to retire at that point and sit back with a $65,000 annual pay check, you will need to plan for it.
Based on the assumption that you will be easily able to find a 4.5% dividend yield for your post-retirement investment portfolio, you are going to require a superannuation balance of approximately $1.45 million. This would pull in $65,000 of annual dividend income.
Though, it is worth noting that this assumes that you want to maintain (or even grow) your super balance rather than deplete it with your withdrawals each year.
Theoretically, you could get away with a smaller balance and live from a combination of dividend income and the proceeds from the sale of shares.
A balance of $1.2 million would yield $54,000 of dividend income each year, all else equal. After which, you could cash in some or all of your capital gains for the year (if there are any) to supplement your income.
How to get there
If your super balance is looking a touch skinny compared to these numbers but you have time on your side, don't worry.
For a 45-year-old single that is starting at zero, they could get to a $1.4 million balance by investing $1,800 per month into ASX shares if they average a 9% per annum total return for 22 years.
The key is to focus on investing in the highest quality companies you can find that have bright long term outlooks and sustainable competitive advantages. And the sooner you start, the better.
