In its latest Trialogue article, superannuation consulting firm Tria Investment Partners posed the question: ‘Is $1 million in superannuation too much?’
Tria began with the assumption of the Financial System Inquiry, accepted by the government, that the starting point for a definition of superannuation will be “to provide retirement incomes to substitute or supplement the age pension”.
“But, let’s also consider what’s not included – namely, that super is not intended to be a concessionally taxed vehicle for intergenerational wealth transfer,” said Tria.
“This acknowledgement might pave the way for further reductions in concessions for members with higher balances or incomes.”
The popular notion is that retirees need a balance of $1 million or more for a comfortable retirement, but that could provide an income of around $65,000 per annum, said Tria.
“Being tax free, that’s the equivalent of an annual salary of about $95,000, more than $18,000 pa in excess of average wages [according to the Australian Bureau of Statistics],” said Tria.
The Association of Superannuation Funds of Australia (ASFA) Retirement Standard states that an income of $43,000 per annum will provide a single person with a comfortable (but not luxurious) retirement.
“For example, it allows about $5,000 per year for travel – almost enough for an annual European river cruise,” said Tria.
“To achieve an income of $43,000, a single person needs to draw down $20,000 per year from super, on top of the full Centrelink age pension.
“A retiree can achieve that drawdown amount – and therefore a comfortable retirement – with a well-managed balance of around $310,000.
“And the good news? Within the decade, the average person who has worked full time since the system began in 1992 will actually have that balance or more,” said Tria.
But Tria was also quick to stress it is not proposing a limit on super balances of $300,000.
“The benefits for individuals and the nation of encouraging super accumulation are indisputable and higher balances substitute, rather than supplement, the age pension,” said Tria.
“But we should encourage people towards an achievable target of $300K or so and be clear about the difference it can make to the standard of living of an average retiree.”
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Agree 100% David. I love this concept of what is ‘comfortable’. Comfortable for whom?
If a couple manages to accrue $300K in super between them then the system has failed. These people are still on a full age pension. The SG system has done nothing for these people to move of the taxpayer supported teat.
Its a bit like those stupid ‘Compare the Pair’ ads, where two sheep dont get advice and the one who goes with a Union Super Fund gets $30K more in his super after 30 years. Big deal. Go and get advice, implement an real financial plan, take some action for yourself and grow some real wealth to put yourself in an independent position.
Quoting: [i]The popular notion is that retirees need a balance of $1 million or more for a comfortable retirement, but that could provide an income of around $65,000 per annum, said Tria.
“Being tax free, thats the equivalent of an annual salary of about $95,000, more than $18,000 pa in excess of average wages [according to the Australian Bureau of Statistics],” said Tria.[/i]
I’d suggest those with $1m plus in Super are NOT on average wages, and would have a much higher expectation of what a “comfortable retirement” would be. They would also NOT be looking to supplement their Super income with the age pension in retirement, which I believe is the whole point of the exercise??
If someone is earning $180k per year now, why should they be expected to live on the equivalent of “average wages” in my retirement?