How much money is enough for retirement?
THERE'S an old joke that if you ask three economists for their views on the economy, you are likely to get at least four answers.
To an extent, the same variance in views appears to be the case when it comes to answering the question, how much money does one need to live a comfortable retirement? Or more to the point, do most Australians have enough funds to last them through their life?
The Association of Superannuation Funds of Australia calculates that to have a 'comfortable' retirement, single people will need $545,000 in retirement savings, and couples will need $640,000.
Such balances would generate $42,950 per annum for a single, and $60,604 for couples, according to ASFA, which assumes that the retirees own their own home outright and are relatively healthy.
Yet, how much is needed to be comfortable in retirement does depend on who you ask.
A new study by the public policy think tank, Grattan Institute, suggests that the conventional wisdom that Australians don't save enough for retirement is wrong, and that the vast majority of current and future retirees are likely to be financially comfortable.
Grattan says its modelling shows that, even after allowing for inflation, most workers can expect a retirement income of at least 91 per cent of their pre-retirement income. Furthermore, it says that through a combination of the Age Pension and their compulsory superannuation savings, many low-income earners will actually get a pay rise when they retire.
"Australians tend to spend less after they retire, and even less into old age. Their medical costs increase, but are largely covered by the taxpayer. Many retirees are net savers, and current retirees often leave a legacy almost as large as their nest egg on the day they retired," according to the study's authors, John Daley and Brendan Coates.
They note that loosening the Age Pension assets test could boost retirement incomes for around 20 per cent of retirees, rising to more than 70 per cent of retirees in future.
This would also deal with anomalies in the system, where some people who save $100 while working increase their total retirement income by less than $100 in real terms.
But the institute has hit a raw nerve with Industry Super Australia (ISA), the umbrella organisation for industry superannuation funds, in suggesting that the legislated plan to increase compulsory superannuation contributions from 9.5 per cent to 12 per cent should be scrapped.
Grattan says that because it believes most Australians will be comfortable in retirement, there is no need to boost retirement incomes across the board.
In addition, it states that superannuation tax breaks and age-based tax breaks should be reduced, to ensure the retirement incomes system does not become an excessive burden on future budgets and endanger funding for aged care and health.
However, the ISA says Grattan's modelling showing the current 9.5 per cent Superannuation Guarantee levy will deliver adequate incomes for future retirees is "deeply flawed".
ISA says the research's flaws include assuming that everyone can top up their super with extra voluntary contributions; that workers have a continuous uninterrupted 37-year working life and contributions; and that living standards in retirement shouldn't keep pace with the rest of the community.
Ultimately, most Australians will want to have created a sizeable nest egg for their retirement to ensure they can have a reasonably comfortable lifestyle.
But how much we should have saved for retirement depends on who you ask. With average life expectancies continuing to rise, one thing is indisputable. The professional number crunchers will need to keep revising up their estimates as many of us have longer lives.
Tony Kaye is the editor of listed financial services group InvestSMART and Eureka Report.