Back in 2019, the Association of Superannuation Funds of Australia (ASFA) estimated that close to one in two (43%) Australians of retirement age would be self-funded by 2023, up from 22% 2000. Today, around two million Australians are either fully or partly self-funded in their retirement.
It's fair to assume that the average Australian might hope to live comfortably, if not lavishly, in retirement. The widely reported ASFA Retirement Standard suggests couples can enjoy a 'comfortable lifestyle' on around $70,000 a year and singles on around $49,000.
(You can check if you have had tax withheld from your benefit by reading your PAYG statement). Fully self-funded retirees are usually tax payers as well and need to detail earnings to the ATO for this reason. Retirement income can be treated in different ways by the taxman.
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
A self funded retiree supports their own retirement without the assistance of the Australian government pension. There are some rewards for managing your own self funded superannuation. These include: Tax bonuses and relief from new laws.
For the first time, around 130,000 self-funded retirees will be able to claim $200 a year to help with their power bills, thanks to a new initiative from the NSW Government aimed at taking cost of living pressure off seniors.
The Commonwealth Seniors Health Card (CSHC) may be available to self-funded retirees of Age Pension age who don't satisfy the means test (income and assets test) requirements for the Age Pension.
For the past few years the figure of $1 million has often been quoted as the ideal amount in superannuation to retire on. It can be a frightening figure to quote as most Australians will struggle to reach it. It also doesn't appear to be true.
If a couple has $1.5 million in retirement funds, they can take out $60,000 per year. Added to their Social Security ($2,739 per month or $32,868 per year) and pensions, these sums can provide them with enough income to live comfortably.
A recent analysis determined that a $1 million retirement nest egg may only last about 20 years depending on what state you live in. Based on this, if you retire at age 65 and live until you turn 84, $1 million will probably be enough retirement savings for you.
If you're 60 and over, the income will generally be tax-free. If you're between your preservation age and 59, the components of your super will dictate how it will be taxed.
Most foreign pensions and annuities are taxable in Australia, even if tax was withheld from your payment by the country from which the payment came.
The ASFA Retirement Standard Explainer says a comfortable retirement lifestyle would need $640,000 in super for a couple, or $545,000 for a single person.
So looking at the table, you can see that a 60-year old male will need a lump sum of almost $500,000 to provide an annual income in retirement of $42,000 for 20 years. These calculations are based on a 20-year time frame because the approximate life expectancy for Australian males is 84 years and 88 for females.
The lifestyle you want
If you're close to retiring use the budget planner to estimate how much money you expect to spend when you stop working. If you own your own home, a rule of thumb is that you'll need two-thirds (67%) of your pre-retirement income to maintain the same standard of living in retirement.
You can certainly retire comfortably at age 65 on a $1.5 million, but your ability to do so relies on how you want to live in retirement, how much you plan to spend, when you plan to claim Social Security and how your portfolio is structured.
The quick answer is “yes”! With some planning, you can retire at 60 with $500k. Remember, however, that your lifestyle will significantly affect how long your savings will last.
Bank Savings Accounts
As noted above, the average rate on savings accounts as of February 3rd 2021, is 0.05% APY. A million-dollar deposit with that APY would generate $500 of interest after one year ($1,000,000 X 0.0005 = $500). If left to compound monthly for 10 years, it would generate $5,011.27.
What if you could make even more money on top of this – how much interest on AUD $1 million invested in a bank, in 2022, might you expect to generate? You might be surprised – the quick answer is, you could make as high A$46,000 a year on $1 million if you were to invest it in a 24-month term deposit.
In doing so, we believe that with $2 million dollars you could roughly draw about $115,000 per annum increasing with inflation throughout 30 years retirement. This amount should create a fairly comfortable retirement for most people.
The data shows Australia has 12,706 taxpayers earning more than $1m, the vast majority of whom have paid some sort of tax on their taxable income.
In most cases, the CSHC income test threshold is now $90,000 per annum for single people and $144,000 for couples (they measure their combined income against this single threshold). But the thresholds have only been this high since November 2022. Before that they were around $61,000 and $98,000 respectively.