Paul Clitheroe
Paul Clitheroe

Bridging the super gap

MANY workers make the mistake of overestimating how much they'll have in super by the time they retire, while also underestimating how much they need to enjoy a comfortable retirement.

It can leave plenty of Australians facing a superannuation shortfall, and the best way to bridge the gap is by keeping track of your super savings long before retirement rolls around.

When it comes to working out how much income you'll need in retirement the ASFA Retirement Standard offers a useful benchmark. It's based on the annual budget required to fund either a 'comfortable' or 'modest' standard of living in our post-work years.

The latest Standard shows that a couple hoping for a 'comfortable' retirement would need an annual income of over $56,000 after tax. Those seeking a 'modest' retirement lifestyle need to spend over $32,000 a year. Bear in mind, these numbers assume the couple owns their home, mortgage-free - there is no allowance made for home loan repayments or rent.

By way of comparison, a couple relying on the age pension today could receive a maximum combined annual income of $27,898. That's well below the amount needed for ASFA's 'modest' lifestyle.

The next step is to work out how much you're likely to have in super by the time you retire. This can involve a bit of guesswork as the final balance will hinge on long term investment returns. The government's MoneySmart website offers a useful online calculator to help you come up with a reasonable estimate. Just have your most recent super fund statement handy to fill in key details, and visit

If it turns out you could be facing a super shortfall there are ways to give your super a boost. The earlier you take action the better. It's a lot easier to build your nest egg gradually over time than waiting until you're about to retire.

One option is to talk to the boss about making extra contributions through salary sacrifice. This is where part of your pre-tax wage is paid into your super rather than going into your regular pay packet. It can be a very tax-friendly and relatively stress-free way to add to your retirement savings.

Your employer isn't obliged to provide salary sacrifice and if this is the case you may need to consider making an after-tax contribution. These are contributions made directly out of your own money, and the beauty is that they don't get taxed when they go into your super - because you have already paid tax on that money when you have received it as salary/wages.

If you're a low income earner you could be eligible for a government co-contribution worth up to $500 when you make an after-tax contribution.

It's also important to check that your fund is charging competitive fees. Over time excessive fees can swallow a big chunk of your savings. The only way to know if you're paying too much in fees is by comparing the cost of your fund with other similar funds. One place you can do that on the Canstar website, by checking out its superannuation star ratings.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit for more information.

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