The Super Fund Co. Blog

One of the most common questions we hear at The Super Fund Co. is: “Will I have enough money to retire?”

With so many variables involved, there is no set answer - but these days, at least $1 million is accepted as being the minimum required to fund a comfortable retirement.

This might come as a shock to many, and a lot of people might think saving $1 million is only achievable by winning the lottery - but we can assure you, it IS achievable. All it takes is some planning and commitment… and a little bit of magic called compounding.

Following are some key tips that we talk about with clients:

Start with your focus. For this example, it’s $1 million, but you can do this for any amount you are saving for.

Frequency – Regular deposits are recommended straight from your pay. Why? What you don’t see, you don’t miss.

Amount – A minimum of 10% of your monthly net income is recommended.

Rate – Choose investments that provide at least a 6% - 8% per annum rate of return.

Type – Consider high interest savings account to get started, then perhaps managed funds once you have saved enough for the minimum investment. As your balance grows, we will look at other assets to spread your investment. If you’re taking advantage of the low tax applied to super, in addition to the superannuation guarantee, you may want to salary sacrifice to your super fund - as long as you don’t exceed the concessional contributions cap.

Risk – Remember: high returns generally mean high risk. On the other hand, being too careful can slow progress. Everyone has a different risk tolerance which depends on age, personality and circumstances. (Check out our blog here on our different investment portfolios based on risk tolerance).

Age – Obviously it’s best to begin as early as possible, but you can still save a substantial amount even if you start in your mid-late 30’s or 40’s.

Emergencies – Emergencies mean just that. If you withdraw money for a new car or big holiday, you’re only undermining yourself. (That doesn’t mean you miss out on these enjoyable lifestyle events… fun is an important part of your savings plan!)

Goal – The figures quoted here are based upon a $1 million target, however, depending on your lifestyle and expectations, you can revise that amount to suit your circumstances.

How many years will it take to save $1 million?

Let’s start with a savings balance of $5,000. This is how long it will take to reach the million dollar mark at different contribution amounts and earnings rates:

Obviously, the earlier you start saving, the smaller the contribution is needed. You can accelerate your contribution rate as your income increases. Savvy savers who pay a mortgage off early can accelerate their program considerably by directing the amount formerly devoted to the mortgage payment into savings.

And what about money you receive along the way? If you receive an inheritance of say, $100,000 (assuming an annual return of 8%), the $1 million mark can be reached in just 20 years contributing only $400 per month.

Regular investing is likened to building a “saving muscle.” You grow accustomed to putting away this money over the years and are able to increase the amount as you would increase an exercise regimen. Eventually, it becomes habit, you don’t notice the pain anymore, and the pay off can be enormous at the end. Like achieving a fit and healthy body, building your saving muscle results in a healthy financial outlook.

Being a millionaire may seem like an unattainable dream, but with the right amount of planning and diligence you can join the Millionaires’ Club sooner than you think.

Notes: taxation and inflation have not been taken into account in these calculations. Calculation based on achieving $1 million in today’s dollars.

Source: Bankrate calculator “How long until you’re a millionaire?”