Retirement: How much do you need?

$1 million isn't enough

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$1 million might seem like a lot, but it's unlikely to be enough to sustain a comfortable retirement.

Research by Deloitte has found that the average 30-year old worker will need at least $1.58 million in superannuation assets by the time they turn 65 in 2048. Females will need at least $1.76 million, as they tend to live longer than males.

And despite the federal government's plan to raise the Superannuation Guarantee from 9% to 12%, that still won't be enough. Males would need to contribute an additional 5.4% on top of that, while females need to add an extra 7.5% each year to ensure they have a comfortable retirement which includes overseas holidays, a nice car and eating out regularly. Forego those luxuries and a $1 million balance will allow a retiree to live a modest life.

With increasing life spans, people now need much more in retirement than previously expected, and that situation is only likely to get worse as medical advances and healthier diets and lifestyles mean we are likely to live even longer in future.

So the question is how do you get there?

The first goal is to take active control of your superannuation. Whether it's in a managed fund or self-managed super fund, make sure you understand how much you are likely to have when you retire. There are various calculators on many financial services websites that will give you a rough estimate, including the Australian Securities & Investments Commission's MoneySmart website.

If you aren't going to have as much as you want, then you need to start digging into why not. Are you paying too much in fees, are the returns too low to meet your goals, or both? If you have large amounts of cash sitting in banks accounts with the big four ANZ Bank (ASX: ANZ), Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC), you may need to consider switching some of it to other asset classes to boost your returns. You may also need to consider contributing more to your super, but be careful of limits that currently apply to the maximum amount you can put into super.

Foolish takeaway

The earlier in our life we take control of our super, the better chance we can give compounding the opportunity to boost our returns. As Albert Einstein said, "Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it."

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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