Home / Superannuation / Don’t have half a million in super? There’s no need to panic

Fresh research explains how a lifetime income product, combined with an allocated pension, could mean those on the cusp of retiring will require much smaller superannuation balances than ASFA’s recommended targets.

The Association of Superannuation Funds of Australia (ASFA) says that for a comfortable retirement, a single homeowner retiring at 67 needs $595,000 while a couple needs $690,000.

Hats off to anyone who has managed to save that much, but with the median superannuation balance for men aged 60 to 64 sitting at $205,385 and $153,685 for women in the same age bracket, the chances are that most Australian retirees will not have achieved anywhere near those amounts.

So, is it time to panic? Maybe not, according to a research paper by Optimum Pensions that looks at how a lifetime income product, combined with an allocated pension, may require a much smaller superannuation balance at retirement.

For a long time, lifetime income products, or annuities, have not had a great reputation in Australia, perceived as expensive products with low returns. There have also been worries about what happens to the money if you die before the annuity runs out.

But Peter Rowe (pictured), Optimum Pensions former general manager and now a retiree, says that annuities have changed. The new breeds of annuities come with longevity protection via insurance, unlike account-based pensions. They also retain the option for retirees to have investment choice and come with death benefits that mean you can nominate somebody for the funds to go to on your death.

“But most importantly you get better treatment under the age pension rules because only 60 per cent of the investment-linked annuity counts towards the means test,” Rowe tells The Golden Times.

With the 60 per cent asset tests exemption in mind, Rowe and Optimum Pensions managing director, David Orford, took another look at what you might need in their paper titled How much do you really need to retire?

As highlighted above, ASFA’s suggested lump sum balance for a single comfortable retirement sits at $595,000. That balance would provide a person retiring today at 67 with an annual income of just over $51,000 via their super and a part age pension until age 97.

But what if that person – let’s call her Jane – were to move half her super into a new investment-linked lifetime pension that could pay her an annual income of 5.5 per cent of the amount deposited at current market rates.

The Optimum Pensions paper found if Jane invested $297,500 of her super in an investment-linked lifetime pension/annuity that would provide her with an annual income of $16,271.

This level of income is expected to increase, on average, a little more than inflation. As only 60 per cent of the lifetime product counts toward the assets means tests for the age pension, Optimum calculates that Jane’s part age pension would increase from $5,641 without an annuity in the first year to $14,923 with an annuity.

This means that to fund an annual income of $51,000 until she was 97, Jane would only need $488,000 at retirement – more than $100,000 less than the ASFA-suggested sum for a comfortable retirement. “I’ve got an annuity now and I can report that it definitely works,” Rowe says.

Rowe retired just over two months ago and has both a lifetime annuity and an allocated pension. He says he likes the set-and-forget nature of the annuity. Having not long moved into an over-55 community, he uses the regular income to pay rent.

“The rent just automatically comes out of my annuity which is great. And if I pass on it goes to my wife and it will keep doing that for her.”

The Australian Retirement Trust and HostPlus offer their retired members a lifetime income option, and AustralianSuper is working with insurer TAL to provide one.

UniSuper has been offering such a product since 1998 when it stopped providing its defined benefit indexed pension option to all members. Originally called the Commercial Rate Indexed Pension, it recently underwent a name change and is now called Lifetime Income.

Assistant Treasurer and Minister for Financial Services Stephen Jones recently announced a new suite of reforms designed to improve the retirement phase of superannuation that may make it easier for other funds to offer products in this space.

“By improving the innovative income stream regulations, the reforms will support innovation in quality retirement products, giving members more options that meet their needs and helping them make the most of their super. The updated regulations will start from July 1, 2026, with consultation on draft regulations ahead of this.”