Do you really need $1.25 million in super to retire?

A third of Aussies are aiming to have more than $1.25 million in superannuation by the time they retire. But experts say they might be overestimating how expensive retirement will be and could actually retire sooner.

Thirty-five per cent of Australians are aiming to retire with over $1.25 million in superannuation, according to new data from MLC.

But experts are urging Aussies to think about whether they really need to save this much, as most will get financial help from the government in retirement and won't have to rely solely on their super.

MLC admits the $1.25 million target is "highly ambitious" and would translate into an income of $83,000 per year in retirement.

The super fund says that's enough for a "champagne" lifestyle with lots of travel overseas and in Australia.

"They are quite aspirational targets," notes Jenneke Mills, head of technical services at MLC.

"They are quite a bit higher than what ASFA (Association of Superannuation Funds of Australia) has suggested in the past".

Not all of the 2500 people who responded to MLC's survey had set targets as high as those of their peers.

Thirty-one per cent said they would be happy with a super balance between $751,000 and $1.25 million.

Meanwhile, 34% were confident a nest egg of less than $750,000 would be enough for their retirement.

Do you actually need $1.25 million in super?

Super industry groups like ASFA and consumer advocate Super Consumers Australia (SCA) say Australians shouldn't feel pressured to try and build a super balance of over one million dollars.

"You don't need anything like those levels in order to live a happy, comfortable retirement," says SCA CEO Xavier O'Halloran.

Both SCA and ASFA say a super balance of only a few hundred thousand dollars is enough for a single person to enjoy an at least modest, if not comfortable, retirement.

Mills says Australians do tend to overestimate how much super they'll need and says this might be because many don't realise they'll also be able to draw on the age pension once they retire.

"Some Australians who don't necessarily understand that interaction can be planning for retirement by just looking at superannuation, without really understanding what other benefits they could become entitled to," she says.

Around 62% of Australians over the age of 65 receive a part or full age pension from the federal government, according to AustralianSuper.

For those living modestly with a relatively small nest egg, SCA analysis shows the age pension can pay for as much as 91% of retirement spending.

"It's actually a pay rise for a lot of people in retirement, compared to their working lives," O'Halloran says of the age pension.

"Retirement can actually cost a lot less than working life," adds James Koval, chief policy and advocacy officer at ASFA.

"[For example], when people are in retirement and accessing their super, they're not paying tax on that super pension income... tax is a cost that actually disappears".

In addition to a lower tax burden, retirees also enjoy discounts on a broad range of daily expenses, such as energy, medicine and transport.

So how much super do you actually need?

Mills says it's useful to think about how much you'll spend regularly in retirement and let that estimate dictate what size nest egg to aim for.

"We want people to understand what that lump sum translates to in terms of an income," she explains.

"Otherwise people... might be foregoing as much flexibility in retirement as they'd like and working longer when they don't necessarily need to".

ASFA updates its advice on how much you need for a "comfortable" or "modest" retirement every quarter.

To help consumers see where they might fit, it also gives an indication of how much you'd likely be spending per year living each way, while drawing on your super and a full or part age pension.

Put your age, income, current super balance and other details into Moneysmart's superannuation calculator to see how much you'll have saved by the time you retire.

See how your current balance compares by checking how much other people your age have in super.

Renting changes the game

But these recommended targets assume you'll own your home outright by the time you finish working.

ASFA and SCA warn you'll need significantly more super if you'll be renting or juggling housing costs in retirement.

In fact, ASFA says someone living up to its modest lifestyle benchmark while renting privately would need $340,000 in super - more than double what would be required for the same quality of life if they'd owned their own home outright.

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