Index shows size of super shortfall

IN NEWS just in, apparently we're not going to have enough superannuation to retire comfortably on. Gosh, nobody told me!

By InvestSMART · 5 Sep 2010

By InvestSMART ·
5 Sep 2010

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IN NEWS just in, apparently we're not going to have enough superannuation to retire comfortably on. Gosh, nobody told me!

I tell a lie. Of course they did and I know I'm among the hundreds of media pundits who have been telling you this fact for years and encouraging you to put a little more away in your pool of retirement savings when you can.

What you may not know is by just how much you are likely to fall short.

One of the biggest superannuation funds in Australia by funds under management and member numbers, AustralianSuper, has just put together something called a retirement readiness index.

It's designed to work out just how ready you might be for retirement. The fund has a retirement income calculator on its website, so you can work out your own "readiness", but it also conducted some research with Rice Warner Actuaries.

The survey of more than 2700 people found the average person is only ready for 60 per cent of what is assumed to be a comfortable retirement income ($39159 for singles and $53565 for couples, as estimated by the ASFA/Westpac Retirement Standard).

If the retirement age were 65, then the average person has a retirement ready index (RRI) of 60.1 per cent, if it is 67 then that rises to 70.3 per cent.

If the Labor government is restored and it implements its proposed changes to increase the superannuation guarantee (SG) to 12 per cent and the retirement age were 67, then the RRI increases to as high as 78.3 per cent. That means the average person will have saved enough to support themselves for 78.3 per cent of the comfortable retirement income.

Unsurprisingly, younger people are better off than baby boomers. Those aged between 20 and 30 have an RRI of 68 per cent if retiring at 65 but that jumps to 80 per cent at age 67. If the changes to the SG are implemented, those numbers rise to 79 per cent and 92 per cent respectively.

The chief executive of AustralianSuper, Ian Silk, has urged politicians to increase the superannuation guarantee as a "matter of utmost national importance".

But also of note is the difference an extra two years of employment will make to your final sum. A 10-percentage-point increase in your income is probably well worth the additional time in the office if it means you'll be able to do more when you've left it for good.

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Frequently Asked Questions about this Article…

What is the AustralianSuper Retirement Readiness Index (RRI) and why does it matter for my superannuation?

The Retirement Readiness Index (RRI) is a measure published by AustralianSuper (developed with Rice Warner Actuaries) that estimates how prepared members are for a 'comfortable' retirement. It compares your likely retirement income to the ASFA/Westpac Retirement Standard benchmark and highlights shortfalls so everyday investors can see how much more they may need to save.

How much of a shortfall do Australians have for a comfortable retirement?

According to the AustralianSuper survey of more than 2,700 people, the average person is only ready for about 60% of the ASFA/Westpac 'comfortable' retirement income (about $39,159 for singles and $53,565 for couples). That shows a sizeable gap between current savings and the benchmark for a comfortable retirement.

How does changing the retirement age from 65 to 67 affect retirement readiness?

The RRI improves noticeably if retirement age rises. The article reports the average person’s RRI is about 60.1% if retiring at 65, and it rises to about 70.3% if the retirement age is 67 — showing that two extra years of work can materially boost your retirement readiness.

What impact would increasing the Superannuation Guarantee (SG) to 12% have on retirement savings?

AustralianSuper’s research suggests that if the SG were increased to 12% (as proposed by Labor) and the retirement age were 67, the average person’s RRI could rise to as high as 78.3%. In other words, higher compulsory contributions could substantially reduce the typical shortfall.

Are younger Australians better prepared for retirement than older generations?

Yes — the article notes younger people generally fare better. For example, people aged 20–30 have an RRI of about 68% if retiring at 65 and 80% if retiring at 67. If SG rises to 12%, those figures increase to roughly 79% and 92% respectively.

How can I check my own retirement readiness using AustralianSuper tools?

AustralianSuper offers a retirement income calculator on its website that lets you estimate your personal RRI and see how your savings stack up against the ASFA/Westpac Retirement Standard. The RRI research was produced with Rice Warner Actuaries and supports the calculator’s insights.

Would working an extra two years really help my final superannuation balance?

Yes. The article emphasises that an extra two years of employment can make a big difference to your final super sum — increasing contributions and earnings potential. It suggests that a roughly 10-per-cent increase in income from working longer could be well worth the additional time if it meaningfully improves your retirement options.

If my RRI is below 100%, what simple steps can everyday investors take to improve retirement readiness?

Based on the article’s points, practical steps include putting a little more into your super when you can, considering working longer to boost contributions and balances, and keeping an eye on policy changes (like SG increases) that could help. Using tools such as AustralianSuper’s retirement income calculator is a good first step to understand your gap.