You'll probably see the $1 million superannuation figure floated whenever anyone talks about how much you need to retire.
Every few months superannuation industry bodies declare that this is the amount that every single one of us needs before we can think about retiring.
But the reality is, while $1 million will afford you an extremely comfortable retirement lifestyle, it's not anywhere close to the minimum requirement.
Image source: Getty Images
How much superannuation do I actually need to retire in Australia?
According to the Association of Superannuation Funds of Australia (ASFA), the actual amount required depends on what retirement lifestyle you expect to live when you stop working.
A modest retirement is one defined as being able to cover expenses slightly above the full Centrelink Age Pension.
Meanwhile a comfortable retirement is one that allows you to maintain a good standard of living above and beyond what a modest retirement can give. This could include top-level private health insurance, regular leisure activities or occasional meals out.
Both lifestyles assume financial independence and that you own your house outright.
ASFA has calculated that Australians can assume a modest retirement will cost around $35,503 per year, or $51,299 per year for a couple. To fund that, ASFA estimates you need a superannuation balance of around $110,000, or a couple would need $120,000.
The cost of a comfortable retirement is a lot higher. Australians who want to live comfortably in retirement can expect to spend around $54,840 per year, or $77,375 per year for couples. That would require a superannuation balance of around $630,000 for a single person, or $730,000 for a couple.
While these superannuation balances are high, especially for anyone wanting a comfortable retirement, they're significantly lower than the $1 million figure we frequently hear about.
How do I know exactly what figure works for me?
While the figures above are helpful benchmarks, they fail to represent the exact figure you'll need for retirement.
If you're planning to live more extravagantly then you'll likely need a little more. Same for if you don't yet own your home outright.
Meanwhile, if you're happy to cut right back on costs then perhaps you'd need a little less.
Your first step is to figure out your own retirement spending and savings targets. To do this you'll need to set a budget of how much you think you'll spend each week or month in retirement.
You'll also need to find out how much you currently have in your superannuation fund. Some of these funds can help you predict your retirement income. If it doesn't, you can use an online tool calculator to help.
Then you want to compare your predicted regiment income to the budget you set yourself.
Many Australians will be on track or close to the figure they need, particularly if their super is invested in growth assets linked to the S&P/ASX 200 Index (ASX: XJO).
If yours is behind then it's time to make some adjustments to ensure you're in a well-performing fund, or make additional contributions to boost your balance as much as you can before your desired retirement age comes.
