Millennials… Is your retirement on track?

By Ali Roshan

Millennials, (those born between 1981 and 1996) like the generations before them, are now buying, or trying to buy, homes and starting their own families. Consequently, the stark reality is that their retirement is looming. For too many, planning for retirement is something they don’t think about. However, the sooner you start ‘mapping’ or preparing for retirement, the better off you will be. 

How much is ‘enough’, is different for every individual. Based on the Association of Superannuation Funds Australia (ASFA’s) figures, the table below suggests that on average, there’s a potential shortfall in today’s super balances to be on track for a ‘comfortable retirement’. It shows where your super balance should be based on the ASFA recommended figures for a ‘comfortable retirement’ at your age today. These recommended super balances have been calculated (April 2022) using the ASFA Super Guru Super Balance Detective Calculator1, averaged across different age groups. 

ASFA’s view on what your average super balance should be today: 

Age Today’s super average balance2 Recommended super balance today for ASFA’s ‘comfortable retirement’3 Gap 
25 – 29 $23,474 $31,200 -$7,726 
30 – 34 $46,708 $68,800 -$22,092 
35 – 39 $75,167 $112,200 -$37,033 
40 – 44 $106,900 $163,800 -$56,900 

The ASFA estimates how much money you may need for your retirement for either a ‘comfortable’ or ‘modest’ retirement. The estimated figures are based on your lifestyle, including multiple activities and other expenses like insurance, and spend on items like cars, holidays and household objects. For more information and detail, please read the ASFA Retirement Standard.  

Another way to estimate what you may need in retirement is based on the Retirement Income Review – Final Report, which was released by The Australian Government’s Treasury Department on 20 November 2020. This report refers to a general retirement income target of around two-thirds (65 – 75%) of your pre-retirement income for each year of your retirement instead of using the ASFA Retirement Standard. Please consider which retirement target may be more appropriate for your circumstances4

In order to help bridge a shortfall, you could contribute at least 15 per cent of your gross salary, including the current 10.5% (and annually increasing – see table below) compulsory super guarantee contribution, to superannuation each year. This would boost your chances of achieving a secure retirement. 

Financial Year Superannuation guarantee rate  
1 July 2022 – 30 June 2023 10.5% (actual) 
1 July 2023 – 30 June 2024 11% (proposed) 
1 July 2024 – 30 June 2025 11.5% (proposed) 
1 July 2025 – 30 June 2026 and onwards 12% (proposed) 

A Case Study 

Marion, is 29 and earns $95,000 a year as a successful professional accountant. While her employer contributes 10.5% of her income to super, she has less than $100,000 in super, and is more focused on boosting her non-super savings of $75,000, so she can buy a small apartment. She is not alone in this thinking. 

Most millennials, burdened by HECS debts and increasingly casual employment arrangements, find boosting their super contributions a challenge. Moreover,  many millennials, like Marion, struggle to save a deposit for an increasingly expensive home of their own.   

They know they will live longer than previous generations and that health and living costs will be greater for them in retirement.  Social security entitlements will be less than their grandparents received. 

Nonetheless, when asked, millennials want to retire earlier than previous generations and are looking for a different type of retirement. One where they can travel more while still enjoying doing so and keep working on a casual part-time basis, if they enjoy the work. 

It means that amongst all the competing demands on their time and money, superannuation has to become part of the landscape.  

For Marion, it has meant searching for a better superannuation fund with lower fees and better investment options, while scaling back her plans to buy an apartment and perhaps relying more on the Bank of Mum and Dad to help her do so. 

What you can do 

The sooner you take control of your superannuation, the better. The first step is to look at consolidating any multiple super accounts (being aware of any insurance considerations first) and wherever possible, boost your contributions to around 15%. Then you can leave compound interest to work its magic and, like a snowball rolling down a hillside, build the balance within your super. 

You can work closely with a qualified financial adviser to help you ensure your superannuation stays on track to achieve the best possible outcomes when you start thinking seriously about retiring.