Commentators who claim that $1 million in superannuation is needed for a comfortable retirement are causing unnecessary concern for those approaching retirement, according to the Australian Institute of Superannuation Trustees (AIST).
In a recent AIST paper – Busting the $1 million retirement myth – Tom Garcia, AIST chief executive, said recent claims that super balances of $1 million are needed for retirement are not taking into account the role of the age pension.
“Super doesn’t exist in a vacuum. Most people approaching retirement will draw an income that is a combination of both super and the age pension,” Mr Garcia said.
“The reality is that most Australians – including most of those starting out in the workforce today – will not retire with the equivalent of $1 million in super.”
According to AIST, less than five out of every 100 super fund members have $1 million or more in their accounts.
“We need to stop focusing on the needs of a privileged few and start talking about how relatively small balances of super can still make a big difference to the quality of life in retirement,” he said.
The report highlighted that the age pension and superannuation are “intrinsically linked as key pillars of Australia’s retirement income”.
The age pension is purposely designed for people on low to middle incomes to boost their retirement income.
According to the report, a super balance of $150,000 will deliver an additional $163 per week on top of the age pension, a 38 per cent increase.
Moreover, a worker on $55,000 per year can expect to retire with a tax-free income of $34,000 – 79 per cent of his or her take home pay.
AIST pointed out that many Australians lack a good understanding of how super works in retirement.
“It’s time to get real about super and ensure all Australians have a far better understanding of the sort of income they can expect in retirement,” Mr Garcia said.
AustralianSuper chief executive, Ian Silk, said members are getting mixed messages, which is causing uncertainty and disengagement.
“The key point for people to appreciate is that even relatively modest super balances can make a meaningful contribution to an adequate retirement income when combined with the age pension,” Mr Silk said.
“So rather than despair, workers with $100,000, or even $50,000 in their super accounts should take heart. The super savings they’ve accumulated give them options they might not realise,” he said.
AIST concluded that commentary about superannuation balances needs to be more informed and realistic.
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