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Calculators & Tools

Self Funding your Retirement – Free Planning Tool & Calculations

Knowing how much you need in Super by the time you retire is critically important before planning out your retirement and associated investment strategies.

There is no excuse for not making it a priority when you are young as you have time on your side and hopefully this article outlines what a monumental difference having a handle on your investments can make.

Rather than paying a Financial Planner thousands of dollars to create scenarios for you, we’ve outlined out retirement plans in three scenarios

Understanding the numbers pre retirement

Current Age

This one is fairly obvious and the sooner you start thinking about your retirement, the easier it will be to look at Superannuation investment opportunities.

Gareth is 35 so the scenario is based on him.

Life Expectancy

This one is really important as it moves the needle a lot. For me, I have a fairly non physical job, not really at any risk of dying on the job unless my keyboard and my grandparents lived to 90+.

Living in Australia, the official stats say the life expectancy is 82.50 so I can only assume that I should have a high chance of hitting that.

Gareth went with 90 as the target life expectancy.

Annual Income

This one doesn’t make as much of a difference as you think. Its really only used to calculate the contributions to super in percentage terms. In Australia all individuals are entitled to a $25,000 superannuation contribution limit and a compulsory 9.5% from your employer.

Thus we have used an annual income of $260,000 as $260,000 x 9.5% = $24,700 contribution to super each year.

Annual Income Increase

The annual income increase box can move the needle substantially as it will adjust the superannuation contribution of which we Australians are limited to keep things easy to follow, we’ve assumed no pay rises until retirement. Or you could look at it as being able to contribute $24,700 per annum to super until age 60.

Percent of Income Invested

The percent of income invested we have assumed 9.5% which is the current compulsory superannuation contribution for employed Australians. We have however ‘modified’ the numbers to take advantage of the $25,000 tax concession.

Current Superannuation (Retirement) Savings

We have assumed a starting balance of $500,000 AUD

Understanding the numbers post retirement

Age at Retirement

Gareth has an optimistic dream of being able to retire at age 60 like many baby boomers however the realistic fact for many Australians is working until much later in life. However for the sake of the examples, we’ve gone with age 60.

ROI for Retirement Funds

ROI stands for Return on Investment. The ROI for Retirement Funds is the expected performance of your superannuation investments from retirement to end of life. For the sake of the examples, we have assumed that your investments will revert to cash from when you retire.

Obviously if you can achieve risk free investments at better than 2% through retirement, you will have more to spend.

Annual Inflation Rate

This number is really important and often forgotten. This helps to understand the time value of money and how inflation can easily eat into investment returns. In theory you should also have your funds invested where you can achieve at least the inflation rate or better.

Read more about how Inflation affects investment returns here.

Desired Retirement Income

Another major needle mover, how much income you need in retirement will greatly affect the amount of money you need at retirement. Much of the internet suggests that you should need around two thirds of your pre retirement income to maintain the same standard of living in Australia.

Gareth is used to niceish cars, an international holiday once a year and an expensive wine habit so we’ve assumed a bit more. Still not ridiculous but a bit more than the suggested averages from AFSA (see table below)

ASFA Retirement Standard Annual living costs Weekly living costs
Couple — comfortable $62,269 $1,193
Single — comfortable $44,146 $846
Couple — modest $40,560 $777
Single — modest $28,165 $540

Source: ASFA Retirement Standard, December quarter 2019

Income from Other Sources

Income from Government

This part of the calculator assumes you can access government benefits like the pension. For the sake of the example, we have assumed you do not access any income from government sources.

Other annual income

This part of the calculator assumes you will receive additional income through retirement such as a part time job, inheritance or gifts. For the sake of the example, we have assumed you do not receive any of these benefits.

Taxation on Super

Important Note, the calculator DOES NOT take into account tax.

Learn more about how Tax effects Superannuation Returns here

Return on Investment

The return on investment achieved by your super fund is what moves the needle the most.

  • In the first scenario we have assumed the benchmark performance of superannuation funds over the last 10 years (6.2%), Read more about the Best Performing Super Funds here
  • In the second scenario, we have assumed the benchmark performance plus 2% for a total of 8.2% per annum due to better knowledge, better timing and cost savings.
  • In the third scenario, we have assumed you’re as good as the grandfather of investing, Warren Buffet, and take advantage of the best market conditions in history. Berkshire Hathaway achieved a track record of 19% PA since 1965. Lets consider this scenario as the best case scenario.
  • In the forth and final scenario, we have assumed the current cash rate at 1.5%. Lets consider this the worse case scenario.

Now the results

Remember all scenarios do not account for taxation or major unplanned events. Thus its best to over estimate your requirements.

Scenario #1 – Average Returns

In this scenario we have assumed Gareth has left his superannuation in a typical balanced super fund and not paid much attention to it.

We can see that in this scenario, all the numbers work out, he is able to self fund his retirement and withdraw $100,000 per annum (pre tax) up until the age of 90 with a little left over at the end.

Scroll down to see what happens if we get a boost in performance.

Scenario #2 – Slightly better returns

In this scenario, every number is exactly the same, except for one crucial difference.

Due to a better understanding of Gareth’s investments, a better understanding of timing and trimming the costs out of his super fund, we have been able to get a slightly better 8.2% annual investment return.

Please be clear, we have not suggested changing the superannuation investment allocation.

Simply

  1. Cutting costs like financial advisors
  2. Shopping around for the best funds
  3. Timing the entries through self managed super fund allocations

And look at the difference! An extra $3,000,000 at the end of retirement! Or an extra $50,000 per year for 30 years through retirement!

Read on to see how the best in the business can do.

Scenario #3 – Industry leading returns

In this scenario, every number is exactly the same as the previous two examples except for return on investment.

In this example, we’ve assumed you’re at the top of your game and can consistently, keyword consistently, achieve 20% returns for 30 years.

This one really illustrates the power of compound interest. Of course we would all want to achieve 20% per year for the rest of our lives but the probability of doing so is slim.

Now scroll down to see the opposite, sitting your funds in cash.

Scenario #4 – Sitting your funds in cash.

Every number stays the same again, but this time the return on investment is based on cash.

Cash rates have been dropping every year in Australia and are all at time lows. Current term deposits are sitting at around 1.5%

This becomes dangerous territory for self funded retirees due to the annual inflation rate being higher than the cash rate.

In this scenario, assuming the same level of retirement income, the cash runs out at age 73.

Expect to live to 90 and you’ll need to reduce your annual income to around $40,000 to make it to the end.

Summary – Start a Self Managed Super Fund today

It is my opinion that a self managed super fund is the key to getting a slightly better return which translates into an enormous difference in retirement.

Yes there are costs and hassle associated with a self managed super fund but the primary benefit of being able to time the investment allocation and invest in better opportunities without fees really does make a big difference down the line.

Just think about it this way, an extra $50,000/year for the life of your retirement is worth spending a day a month on your investments right?!

General Advice Warning

Kind words from Aussies managing
their own self funded futures

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