How much superannuation you need to retire – and how to get it

Anne: Welcome to Australian Retirement Trust’s Super Insider podcast series.

Anne: It still feels great saying this. The insider, Super Insider. All things investments, the economy and strategies to make sure that huge financial nest egg that you have called superannuation is maximised at the end of your working life. My name is Anne Fuchs, I'm Head of Advice at Australian Retirement Trust and with me is Joshua van Gestel, National Manager of Education, and Josh and I are sitting on Turrbal and Yuggera country.

Anne: So I just want to pay respects to Elders past, present and emerging before we kick off.

Anne: And today we're talking about one of my huge passions, retirement, all things retirement.

Josh: The million dollar question.

Anne: We'll say we'll give it a crack. But before we do that.

Josh: Before we do that, we will make our compliance boffins happy.

Anne: Oh boffins. You are controversial.

Josh: Well, we're insiders. They can be boffins. Yeah.

Josh: So before we start, I just need to let everyone know that we're going to talk about quite a number of things today. But this information is of a general nature only. Anything that we talk about doesn't take into account your personal situation or circumstances and and we really encourage you to think about seeking out further advice or guidance on anything we discuss today.

Josh: You can also get a copy of our product disclosure statement from our website or by calling us on 13 11 84. If you're a Super Savings account holder or if you're a QSuper member, you can give us a call on 1300 360 750.

Anne: Marvelous now, marvelous, marvelous. Now, I guess, you know this podcast series, to go back to why we're here and why we're doing this, it’s to make that information about, you know, the questions you have about super and retirement really accessible so you can consume this information when suits you best - on the train to work or at home after watching the news at night and thinking about these big, higher order questions about money and what you do with your life and, you know, maybe save you some time so you don't need to pick up the phone. And certainly pre-retirees have a lot of questions about that they want to ask a fund like ours.

Josh: A great deal for them to think about. Yes. So where will we start?

Anne: Well, I think what is the number one question that someone between the ages of, let's call it 50 and 65 might ask us, Josh?

Josh: I think we would each be millionaires if we had a dollar for every time someone asked us the million-dollar question, as I call it, which is, do I need a million dollars to retire on?

Anne: Yes.

Josh: And I think actually the question is wrong, if I can be a bit controversial.

Anne: Please.

Josh: I would say that the question we should be asked isn't how much do I need or…

Anne: What's the magic number?

Josh: Yeah, yeah, yeah. And and it upsets me that, that I see in the news so often, this is the number you should aim for or another area has come out with with this idea for a suggested number, which that's all great. But what people should actually be thinking about is, well, what am I personally going to need in retirement? What am I going to be spending? What's my situation?

Anne: And not just, and people are, there are families, there are, some people are single, some people are married or in a partnership, some people have different assets that they own and income sources.

Josh: And that's really important that we often, I think, talk about what do you need in super. But it's also thinking about how people retire now. They might still be working well into traditional retirement years, although it might be a change in work.

Josh: They could also be getting income from other investments. They could be getting some age pension. So I think it's also a question of the sources being different.

Josh: But if we can go back to that earlier comment you made. Firstly, it is thinking about your situation and your circumstances. Am I in a couple or am I single? If I'm part of a couple, I know that we're going to share common expenses and spread that load among both of our savings. Whereas if I'm single, I'm dealing with that myself. I think the other thing is to think about, well, if I am part of a couple, is my partner older or younger, am I going to retire when they retire? Are they going to, you know, how’s that play in? Because if I choose to retire early, then I'm going to need a bit more money to support me, for example.

Anne: I think, yeah, I think many of our members, they get into maybe their late fifties or early sixties and a lot of our members have jobs where they're on their feet, whether they're nurses or they're in retail. And you sort of get to 62 and think, oh, I'm tired, my back is hurting, and do I have to keep on working? How much more money do actually need?

Josh: And there is that point, you think, what have I been doing it for? And yes, but like you said, there is that point where they've got to start enjoying it. And for a lot of us, that is going to come sooner than perhaps we think.

Josh: And I think the glaring thing is that a lot more people tend to retire not because of their own decision, but because that's been thrust upon them.

Anne: Because they've got a bad back or whatever it might be.

Josh: Absolutely. So, all the best laid plans may not play out and so it's important that you're actually prepared for that.

Anne: And to add to your point, there's no perfect scenario. Ultimately, everyone is different and they have choices around working longer, saving more. So maybe shall we unpack those choices as members are planning for what is the magic number?

Josh: Absolutely. So I think the first thing that they need to consider with their choices is what sort of retirement do they want to choose.

Josh: So think about what income you may need in retirement. Are you going to be someone who's going to be quite flamboyant in retirement? Are you going to be someone who's on the other extreme and be like a monk?

Anne: That wouldn't be either of us, just quietly.

Josh: No, some of the Franciscans. I know are actually quite flamboyant, themselves.

Anne: Frank and I were married by the Franciscans, but that's another story. But Josh, too, people are actually getting to the end of their working life with a mortgage too, regardless of their lifestyle and they sort of are thinking about that as well.

Josh: And what we've got is about half of people now retiring with quite a significant debt of some sort. So all of this has to be taken into account. So really, I think we say to people, think about what it is your retirement will look like. Don't think about a magic number, think about what you'll actually need and absolutely reach out to us, get guidance, get advice in thinking about what that number may be. 

Josh: The other thing to note is that it's important to consider that number may change. You'll see a lot of people who may retire and may choose to spend money exploring the world and doing things. And then there might be a period where their spending needs actually decrease, but then later in life, medical expenses build up and other things.

Josh: So what I'm trying to say is that don't assume that you just pick a number and that number is going to be something quite constant. It's actually going to be something that could ebb and flow.

Anne: And there's also, too, I think, just the trade offs as you're heading into retirement around, and to your point around personal situations around working longer, whether you can mentally or physically do it, what you can afford in terms of cash flow potentially put in extra to super as voluntary contributions and then at your risk appetite and the whole sleep at night factor that Brian Parker, our Chief Economist, talks about in other episodes.

Josh: Absolutely spot on. So I think the best thing to do is start to either seek out yourself or directly get some guidance. And a lot of funds, including ourselves, have tools that help you forecast what you may need that will then let you know, well, do I need to make adjustments with my investments? Do I need to, as you say, contribute more? And we know there are very different ways to contribute into your super, including now the downsizing opportunity if you sell your principal residence. And we've seen the age and requirements for that come down over the last year or so.

Josh: And actually, there's probably further changes ahead in that. So there's plenty of ways, even if you're very close to retirement, think about, well, how can I continue to improve my situation if that if I get advice, if I seek out a number and that number is not where I want it, then what are my opportunities to shift that?

Anne: And Brian and I have spoken about too just that drawing an income in retirement is that people probably overestimate or underestimate. I'm not sure even what the right term is. They live too frugally the entire time when in retirement. To your point, in those years where you finish work and you're fit and well and you want to get out and spend you know, and you know, those types of things. It's a shame to pass away with money in the bank, so to speak, or money in your fund.

Josh: It is really important to consider that when a person gets to their retirement age, they've got this enormous pool of money and it should be something they see as providing opportunity rather than something that they're having to squirrel away or worry about.

Josh: And as you say, and Brian says, it is our job to lose sleep at night on behalf of our members. That's what we're here for. And we do want members to enjoy their retirement. And that's why it's important when they think about income needs, that they make sure they're enjoying it, that they're not living frugally, as you say.

Josh: But I think, Anne, the other thing is, and this is something we've discussed about the choices people make in retirement, what they actually do with their money.

Josh: And I think it's important to note that sometimes we see people make decisions to just withdraw.

Anne: Yes. And put it in the bank.

Josh: And the disadvantage of that is that while it's in superannuation, it's got really great tax opportunities and could effectively be tax free if they're over the age of 60. We might also see that they choose just to leave it in super and have it continue.

Anne: In an accumulation account.

Josh: In an accumulation account.

Anne: Which is a taxed...

Josh: It’s a taxed environment still. So it's really not giving them an opportunity. So it's also important that they think about not only what am I going to do when I get to retirement and how much am I going to need, but also how am I going to access that?

Josh: And so it's important that people talk again, whether it's to an adviser or doing some exploration themselves or speaking to their fund, what products are there for me in retirement? And you've got things like account based pensions or what people call allocated pensions or lifetime pensions. You've got a whole range of different products there that help people in different circumstances think about how are they going to pay themselves an income in retirement using their super and that's effectively what it is.

Anne: I think there are lots and lots of members who sadly put their head in the sand and sort of ignore this pot of money because they might feel either embarrassed or that they don't have enough or remorse that they should have done more. And so rather than trying to work to find a solution to maximise that pot of money, it's ignored, which is actually really, in a way, self harm, because what if that money, no matter how small it might be, there is more that can be done with it.

Josh: And the sooner you choose to take notice, the more that opportunity is going to be. And I think we see very much in our roles that often people are coming to us at that moment, they've decided that they have to retire because of circumstances or that they just come to us and say, I haven't thought about it and now I'm thinking about it. You think, well, if you had come to us, I’m in my, I'd like to say early forties, but that's kidding myself.

Anne: No, poor us.

Josh: But I've been speaking to a financial adviser myself about my retirement plan since I was in my thirties. And it shouldn't be something that we're scared of. It should be something that we really see as an opportunity.

Anne: So I think just for any for any of our listeners and all members to really understand the difference between being in that superannuation or what we call accumulation and then in the drawdown or decumulation or income account phase, the two differences in tax could you maybe just spell it out so it's really easy for our members to understand the implications of where your money’s invested.

Josh: So there's two ways to think about it. There’s going to be elements of tax based on your age and elements of tax based on the product you're in. Okay.

Josh: So if we talk about the product first, if you're in a decumulation product, so a retirement income product, then the investment earnings that you make are actually going to be gross. There's no tax deducted from those investment earnings. So it means you really are maximising your return. If you're in an accumulation product, superannuation savings, those investment earnings are actually going to have tax taken off of up to 15%. So there is a difference there based on which product you’re in and how much you're then getting in investment return, then thinking about the age-based taxation, if you're under the age of 60, regardless of whether you're in a superannuation accumulation account or a retirement income decumulation account, if you're under the age of 60, there’s going to be tax that you'll have to deal with. Okay. And that will change based on your circumstance. Over the age of 60, though, any income you withdraw, any withdrawals you make as lump sums are going to be tax free.

Josh: So although there’s tax advantages in either case to really maximise the tax opportunities, you have to think about that retirement income drawdown. That's where the real power is. And let's face it, the government gives that the best tax advantages and concessions because that's what they want you using.

Anne: Yeah. That's why superannuation was created in the first place. And that combination of drawing that income from that nest egg along with you need to supplement it with age pension or any other income sources. And on our website we have a wealth of information, don't we Josh.

Josh: The website's wonderful in that it's got tools to help you think about what income you may need.

Anne: Calculators.

Josh: Calculators there. Information for you to think about how the age pension might actually apply to you and what you need to consider. There really is a wealth of information. And I would encourage if anyone was saying, well, what's my next step? I would say, well, probably the first step is jump onto the website, have a look at those calculators that give you an idea of what income you may need. That's then a really great chance to pick up the phone, call us, speak to your financial adviser.

Anne: Or have a live chat too.

Josh: You can have a live chat. Speak to your adviser if you've got one and say, look, this is where I think my income needs are going to go and really flesh it out, test it and start to put in place those plans and see whether you need to do more or whether in fact, for so many of our members, you can sit back and relax and know that you've got it set up.

Anne: Yeah, my reflection, it's just really wise counsel listening to you, Josh, because many of our members obviously want to make sure that they're maximising their assets, their house, their tax when they're earning an income. This is also a huge asset like your house, and it is a taxed environment too. So ignoring it is just absolutely crazy. It’s been so much fun talking about personally my favourite subject, retirement, with you, Josh and look, we'd love you to review this podcast like and share it with your friends and family on your social media channel of choice. And great to have you on the podcast. Josh, we'll see you next time.