By CompareShares.com.au journalist Larissa Tuohy

Australians might now be more aware of the real need to crank up their superannuation savings, but working out exactly how much is needed to fund a retirement that is free of monetary worries is still difficult. There are so many variables at play – with the most important being that it is very hard to predict exactly how long we are going to live for.

According to research by the Association of Superannuation Funds of Australia and Westpac, to have a “comfortable” lifestyle, one that allows a good standard of living, private health cover, a decent car and new clothing, as well as the opportunity to travel both domestically and overseas, a couple will need almost $50,000 a year. To fund a “modest” lifestyle, which doesn’t include many bells and whistles but is a better option than relying on the government pension, the figure is around $26,000 per couple.

So how much do you need to have in your pension pot to get access to this type of income? Financial planner at Commonwealth Financial Planning Daniel Molesworth says that to generate around $40,000 a year, you need approximately $800,000 in super savings. And relying solely on employer contributions is not advisable. Molesworth believes that we should be making additional contributions of around 4-5% of our salary, over a 30 year-period – assuming a real rate of return of 4%.

Obviously, Generation X and Y will have a much easier time of it, having been born into a working landscape which includes compulsory super. But many baby boomers are now being forced to make up for lost time. According to research by the Commonwealth Bank, despite 60% of baby boomers expecting a better lifestyle than their parents and intending to live life to the full, fewer people in 2008 were sure they would be able to afford the lifestyle they desired than those surveyed two years ago. The Lifestyle Aspirations Survey also found that 53% planned to continue working past retirement age in order to supplement their income.

So is there a magic tool available to help us work out what super contributions we need to be making on a regular basis? Molesworth says as a rough rule of thumb, the following calculation can be useful:

100/realistic net rate of return (after removing inflation, say 5%) multiplied by the required retirement income. So for a retirement pot of $800,000, the sums would stack up as 100/5 x $40,000.

Alternatively, Dante De Gori, technical manager at ClearView Retirement Solutions says you should aim for 60-65% of your pre-retirement income as your required income needs in retirement. This generally assumes that by retirement age you have paid off the family home, no longer have children (or expensive schooling) to fund, perhaps are maintaining just one car per couple, and have no additional debt obligations.

Page 1| 2