How much superannuation you need to retire comfortably, and three other gems from Deloitte’s superannuation report

Australia’s superannuation system, the fourth largest in the world, is huge and growing.

The total assets held in superannuation accounts in Australia are currently worth 100% of annual GDP. By 2033, Deloitte reports that will grow to 180% of GDP – an extraordinary savings pool for a country with historically low savings rates.

Accountancy Deloitte has, for the past six years, been conducting an annual overview of the sector, and how it is meeting Australia’s retirement needs.

The latest report, released yesterday, is a fascinating glimpse into how the money that leaves our weekly pay cheque will end up serving us. Here are four gems from Deloitte’s report.

How much you need to retire comfortably

Going on current life expectancy rates, Deloitte has calculated how much super you need to retire with a ‘modest’ or ‘comfortable’ lifestyle.

For men aged 65 today, they need $330,000 in superannuation to fund themselves to the tune of a ‘modest’  $22,654 every year. For women, who generally live slightly longer, they need $360,000 in superannuation assets to pay out the same amount every year.

For those who want a ‘comfortable’ lifestyle in retirement, the figures are nearly double. A man requires $590,000 to pay themselves $41,197 a year, while women need to have $660,000 in superannuation assets for the same.

But most people don’t have anywhere near that

For most Australians nearing retirement, these figures are far, far more than they currently have in their superannuation balances.

According to the Association of Superannuation Funds of Australia, the average male 60-64 year old has $85,000 in superannuation assets. For women, who on average live longer, the disparity is even more stark – most have just $59,000 in superannuation assets.

For those slightly older – the 65-69 year olds, some of whom are already in retirement – the figures are worse. Men in that age group have, on average, $77,000 in superannuation assets while women have $55,000.

For those who have lived only a few decades under the current superannuation regime, there is no way they will have enough in their balances to fund their retirement, Deloitte notes. They will have to rely on the aged pension instead.

As the report’s author, Deloitte partner Wayne Walker, puts it, “despite the $7.6 trillion asset pool we project for 2033, [the potential of superannuation] to generate wealth and prosperity may well bat risk for the average Australian”.

“Many Australians now approaching retirement have only received super for a limited portion of their working lives as our system is still maturing.”

“The concern is that current policy settings, including changes to caps and drawdowns, and the SG 12% increase, will not deliver the lifestyle that the majority of those retiring in the next 20 years are seeking. The reality is that many Australians will need to work longer and where possible contribute more.

“To that end our report projects the possibility of Australians deferring retirement by two and five years respectively. The results are significant.”

For Gen X, the situation is better

For those who’ve worked most of their life paying money into superannuation, the system is working, but not perfectly.

For a statistically average 30 year old working currently on $60,000 a year (the average income for people of that age), Deloitte estimates they’ll retire with $1.1 million in superannuation.

Given rising inflation, Deloitte thinks this’ll be enough to support themselves until they’re 94, but only on a ‘modest’ retirement. If this worker choses a ‘comfortable’ retirement, the $1.1 million will last them only until they’re 77. To have a comfortable retirement that doesn’t run out, Deloitte thinks that worker will need $1.6 million in superannuation assets if male, or $1.8 million if female.

Superannuation hasn’t recovered from the GFC

The financial crisis, which began in 2009, had a huge impact on Australia’s superannuation assets, eclipsing that of recent economic crises such as the dot-com crash.

Deloitte sees the superannuation asset pool remaining below GFC levels until 2016 (see graph), highlighting how much of a setback it was to the balances of millions of Australians, particularly those about to retire.

Industry funds as popular as SMSF

For much of the past few years, self-managed superannuation funds have grown strongly in numbers. But in the years to 2033, Deloitte expects industry funds to grow just as fast. Ultimately, most people move from industry funds to SMSFs as they retire.

Over the past year, growth in SMSFs has slowed, Deloitte notes. This reflects the reduction in concessional contribution limits and product innovation in industry and retail funds, which have blunted the advantages of SMSFs.