Most of us don’t have enough superannuation for a comfortable retirement, so just how much do you need?

A recent research paper released by REST Industry Super revealed that 74% of baby boomers have no idea how much money they will need in retirement and the majority believe they will have to rely on the age pension.

The Australian Bureau of Statistics tells us there are nearly three million Australians aged over 50 in the labour force, accounting for about 28% of the current work force.

As this group transition to retirement, the old-age dependency ratio in Australia is predicted to rise from 20 per 100 working population in 2010 to as high as 36 per 100 working population by 2030.

The ABS expected the most rapid rise in the dependency rate will occur between 2011 and 2031 – in other words, it’s already here.

A key challenge for these over 50s is that the broad- based compulsory superannuation system only started in 1992.

This means that those approaching retirement have not had the benefit of accumulating superannuation savings to the same extent as younger employees, who will have more years in the labour force under the system by the time they retire.

This means that most baby boomers will need to find alternative income sources.

Sure they could rely on the pension, but more and more are taking their financial future in their hands and investing in property.

So how much do you really need to retire comfortably?

Financial planners often recommend that, based on current average annual returns, a couple would need close to $1,000,000 in superannuation when they retire to live modestly.  

This would only give them a very modest lifestyle since they would in general live off the $40,000 or so interest they receive on this, or on dividends from the shares in the super fund.

Accordingly a single person would need about $800,000, once again to live modestly.

Either way this means millions of Australians will struggle in retirement, because only 10% of Australians have more than $100,000 in their super accounts.

A while ago the Association of Superannuation Funds of Australia reported:

“On the basis of the current average superannuation balance and average income of those aged 35 to 44 and the assumption of only compulsory superannuation contributions being made, the average retirement superannuation payout at age 60 for a male currently aged 35 to 44 would be $183,000, while for a female it would only be $93,000.”

Little wonder that more and more Australians are looking at taking control of their financial future and setting up Self-Managed Super Funds (SMSF.)

With all those Baby Boomers transitioning into retirement over the next fifteen years or so, properties bought in a SMSF as a major driver of property values over the next decade.

How much super is enough?

While you’re in your working years choosing a lifestyle is simple — most of us live the life we can afford.

If we want a fancier lifestyle, we need to earn more, win the lottery, marry someone rich or inherit money from a rich relative.

However if you want a comfortable life in retirement, then you better start working on your financial independence now.

Super alone is unlikely to get you there, but growing a substantial property portfolio just may.

The 4-step formula to financial independence:

Here are four timeless rules for achieving financial freedom:

1. Spend less than you earn. This may seem obvious, but many people have difficulty following it. If you’re spending more than you earn, you will never become financially independent. You will be paying money to others for the rest of your life. The earlier you start living by this rule, the better. It is never too late to start.

2. Invest the difference wisely. It may surprise you but the average Australian will earn somewhere between $4 – $5 million during their working life. Yet most of them will retire poor. Clearly the level of your income has no bearing on the level of wealth you achieve, what is critical is the amount you save and invest wisely.

3. Reinvest your investment income so you get compounding growth. As you are beginning to understand, you will never become financially independent on your earnings alone. You need to keep reinvesting. In fact, by the time you become financially free almost all your assets will have come from compounding capital growth, not from your income, your savings or your rent.

4. Keep doing steps 1 and 2 until your asset base reaches a critical mass so that you have the Cash Machine that gives you the income you desire.