Super calculators: Can we trust them?— by Noel Whittaker
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Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Claims that superannuation calculators produce results that are inaccurate or misleading have been in the spotlight lately. It’s not surprising, as there’s little uniformity among the calculators provided by our top super funds’ websites.
But the problem often isn’t about the tool, it’s about the information going into it. The real issue is less likely to lie with the calculators themselves than with the data that users put into them and with the different assumptions made by developers and users.
Super calculators are provided to help give you a rough idea of how much you might have saved by retirement and whether it will be enough to meet your needs. It’s simple: you enter figures like your current balance, projected contributions, and estimated investment returns, and the calculator estimates your retirement savings.
There are two big factors that will affect your super balance at retirement: investment returns and inflation. These issues are linked, and considering that retirement could be 30 or 40 years away, it’s wise not to take any calculations as gospel truth.
I’ve written at length about the importance of investment returns as superannuation builds over decades using the magic of compounding, so I won’t revisit that here.
Inflation is also critical, and many people underestimate its impact. It slowly eats away at the purchasing power of your money so that $1 million in 30 years won’t buy what it does today. If inflation averages 4% rather than 2%, the compounding effect of even this small shift could seriously reduce your buying power over a few decades.
Most calculators assume you’ll keep your money invested throughout retirement, but many people plan to take a lump sum from their super when they retire to pay off their mortgage or fund a big purchase like a caravan or a holiday. Removing large amounts of capital early in retirement can significantly reduce the income stream available to you in later years, throwing the calculators’ prediction off track.
Beyond the usual ups and downs of life, another key factor affecting retirement plans is the age pension you might qualify for. I’ve seen articles suggesting you don’t need as much for retirement as once thought because the age pension is available as a safety net, and this is also not usually included in superannuation calculators. For instance, a couple retiring today with $470,000 in assessable assets – including $430,000 in super – could qualify for a combined annual pension of $44,855. However, if your super performs well and the income you draw is below your returns, your balance may grow, potentially reducing your pension. On the flip side, if you draw down your assets, your pension might increase as your assets decrease. In any event, who knows what pension may be available in 30 years as rising life expectancies stretch government budgets.
Calculators can be valuable tools in your retirement planning if you understand how to use them effectively. Ideally, they provide a foundation for calculating your contributions and assessing whether you need to bolster your savings. But this isn’t a set-and-forget exercise: the key is to stay proactive and adjust as needed.
Ideally, your retirement planning should follow a clear, structured process. First, decide when you’d like to retire, and create a budget to estimate how much you’ll need to spend once you do. Next, assess your current assets and consider options like downsizing your home to free up equity or potential inheritances that may come your way. Then, use a retirement calculator to see whether your existing income and assets will be sufficient or if you need to implement additional strategies to reach your goals.
Each year, review your net worth, revisit your goals, and adapt your strategies as circumstances evolve.
Here are a few helpful calculators:
Super Contributions Calculator: This calculator enables you to make an estimate of what your superannuation may be worth at a given date in the future.
Retirement Drawdown Calculator: This calculator will help you to get an idea of how long your portfolio will last after you retire.
Retirement Lump Sum Calculator: Work out what lump sum you need when you retire to produce a certain level of income.
About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions.
Claims that superannuation calculators produce results that are inaccurate or misleading have been in the spotlight lately. It’s not surprising, as there’s little uniformity among the calculators provided by our top super funds’ websites.
But the problem often isn’t about the tool, it’s about the information going into it. The real issue is less likely to lie with the calculators themselves than with the data that users put into them and with the different assumptions made by developers and users.
Super calculators are provided to help give you a rough idea of how much you might have saved by retirement and whether it will be enough to meet your needs. It’s simple: you enter figures like your current balance, projected contributions, and estimated investment returns, and the calculator estimates your retirement savings.
There are two big factors that will affect your super balance at retirement: investment returns and inflation. These issues are linked, and considering that retirement could be 30 or 40 years away, it’s wise not to take any calculations as gospel truth.
Have you ever used a super calculator? Image Credit: Shutterstock
I’ve written at length about the importance of investment returns as superannuation builds over decades using the magic of compounding, so I won’t revisit that here.
Inflation is also critical, and many people underestimate its impact. It slowly eats away at the purchasing power of your money so that $1 million in 30 years won’t buy what it does today. If inflation averages 4% rather than 2%, the compounding effect of even this small shift could seriously reduce your buying power over a few decades.
Most calculators assume you’ll keep your money invested throughout retirement, but many people plan to take a lump sum from their super when they retire to pay off their mortgage or fund a big purchase like a caravan or a holiday. Removing large amounts of capital early in retirement can significantly reduce the income stream available to you in later years, throwing the calculators’ prediction off track.
Beyond the usual ups and downs of life, another key factor affecting retirement plans is the age pension you might qualify for. I’ve seen articles suggesting you don’t need as much for retirement as once thought because the age pension is available as a safety net, and this is also not usually included in superannuation calculators. For instance, a couple retiring today with $470,000 in assessable assets – including $430,000 in super – could qualify for a combined annual pension of $44,855. However, if your super performs well and the income you draw is below your returns, your balance may grow, potentially reducing your pension. On the flip side, if you draw down your assets, your pension might increase as your assets decrease. In any event, who knows what pension may be available in 30 years as rising life expectancies stretch government budgets.
Calculators can be valuable tools in your retirement planning if you understand how to use them effectively. Ideally, they provide a foundation for calculating your contributions and assessing whether you need to bolster your savings. But this isn’t a set-and-forget exercise: the key is to stay proactive and adjust as needed.
Ideally, your retirement planning should follow a clear, structured process. First, decide when you’d like to retire, and create a budget to estimate how much you’ll need to spend once you do. Next, assess your current assets and consider options like downsizing your home to free up equity or potential inheritances that may come your way. Then, use a retirement calculator to see whether your existing income and assets will be sufficient or if you need to implement additional strategies to reach your goals.
Each year, review your net worth, revisit your goals, and adapt your strategies as circumstances evolve.
Here are a few helpful calculators:
Super Contributions Calculator: This calculator enables you to make an estimate of what your superannuation may be worth at a given date in the future.
Retirement Drawdown Calculator: This calculator will help you to get an idea of how long your portfolio will last after you retire.
Retirement Lump Sum Calculator: Work out what lump sum you need when you retire to produce a certain level of income.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions.
