How much super do I need?
Article by Jane Ridder
When superannuation splitting is being considered as part of a family law property settlement, people tend to take one of two positions - they either want to get as much super as possible to benefit from the tax advantages of this asset or they want to avoid taking superannuation in lieu of other available assets. However, the question they should be asking is: How much super do I need?
This question is a bit like asking 'how long is a piece of string?' as it requires a very individual answer. Superannuation is the primary source of income for many Australians in retirement so it's important to ensure you will have enough to maintain a comfortable retirement. It may seem better to take other assets instead of superannuation to fund, for example, a new home, furniture, etc but what do you do when you retire if you don't have enough superannuation to support yourself?
As a guide, The Association of Superannuation Funds of Australia's Retirement Living Standard (as at 17 February 2010) suggests that a single homeowner needs around $38,600 pa to lead a comfortable lifestyle in retirement.
So, on this basis, how long would your super last? The table below shows how long different superannuation balances would support this income level:
|
Superannuation Balance
|
No. of years
|
|
$300,000
|
9
|
|
$400,000
|
13
|
|
$500,000
|
17
|
|
$600,000
|
22
|
(Assumptions: Age 60+ at commencement, Superannuation funds rolled into an Account Based Pension, drawing $38,600pa indexed at 3%, net annual investment return of 6%, no other income sources.)
Of course, there are a number of considerations that will impact on your particular circumstances. For example: your age, expenses, investment risk profile, other assets and any Centrelink entitlements will all impact on the level of super you need.
Average life expectancy at age 65 is 18.5 years for a man and 21.6 years for a woman (Australian Bureau of Statistics, Australia Life Tables 2005-2007). Given that there's a 50% chance that you'll live longer than average you should ideally have enough superannuation to last well beyond this.
Planning is critical when considering how to best divide the asset pool. Don't neglect superannuation because you can't access it immediately or because you think you'll have enough. A qualified Financial Adviser can help to determine the best level of superannuation for your particular circumstances and your lawyer can then take this into consideration. If you get this wrong, it could have a detrimental impact on your retirement income for the rest of your life - so take care!
Jane Ridder (B.Bus (Fin Plan)) is a Financial Adviser specialising in helping clients through separation/divorce.
Authorised Representative (No. 294778) of Infocus Money Management. Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL No. 236523 trading as Infocus Money Management
The information in this article has been prepared without taking into account any individual's objectives, financial situation or needs. As such, you should consider the appropriateness of the advice and information contained in this article in the light of your own objectives, financial situation or needs and you should seek your own personal advice which has been tailored to your own individual circumstances from a financial planning expert before acting on the advice or information.
If the advice relates to the acquisition or possible acquisition, cancellation, non reinstatement or switching of a particular financial product or financial fund, you should also obtain a copy of and consider the Product Disclosure Statement (PDS) for that product