Astounding amount average Aussie now needs to retire 'comfortably'

Chasing a "comfortable" retirement? Australians now need at least $52,085 a year to support themselves in their twilight years — and that's if they own a home.

If you're hoping to spend 20 years enjoying the fruits of your labour, you will need a $1,041,700 nest egg. So, making the right choice about your superannuation is vital.

Here's what you need to know about choosing the right superannuation account.

What is superannuation?

Everybody has to save for their retirement. To make sure that we all comply with this requirement, the government imposes an obligation on all employers to pay an amount of superannuation on behalf of their employees.

The minimum amount employers can pay is currently 11.5 per cent of earnings. Put simply, your superannuation is a savings account that will accumulate over your working life as your employers contribute an amount with each pay.

The money that goes into your fund is then invested by the fund in assets such as shares, property or interest-bearing cash accounts.

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You can usually choose how your money is invested so if you have a preference for share investment, for instance, you can weight your superannuation investments towards shares.

You also usually have some control over the risk profile of your investments.

At one end of the scale, that could mean weighting your investment profile heavily towards low-risk cash based assets and at the other end of the scale, it could mean targeting your super to much higher risk investments in shares listed in new and emerging markets.

Most people tend not to be so proactively involved in managing their investments and risk profile and accordingly super funds have a “default” balanced investment strategy (a mixed bag of lots of different types of investment, without a heavy weighting towards any particular type of asset) into which most super contributions are invested.

Weekly spending breakdown for a comfortable retirement

Association of Superannuation Funds of Australia provided data on how much a retiree could spend on certain items per week without breaking the bank.

How can I grow my retirement nest egg quicker?

When you reach the other end of your working life, typically once you are over 60, you are then able to withdraw your super, often tax-free, to support your lifestyle in your older years.

The more you save during your working life, the more money you will have in retirement.

The earlier you save, the greater the benefits later on (because your fund has more time to grow).

So, whilst retirement might seem like a long way off when you start your first job, it pays to take super seriously from the start of your working life.

Because super is a very tax-efficient way of saving (contributions into super are taxed at just 15 per cent and income earned by the super fund is also taxable within the fund at just 15 per cent), investing in super is a good way of saving for your retirement, particularly as you start to earn more and your personal marginal tax rate goes up.

Employers have to pay super contributions when you are:

• over 18 years, or

• under 18 years and work over 30 hours a week.

These employer contributions will be made regardless of any extra super you add yourself.

What superannuation account should I choose?

When you start work, you will usually be given the opportunity to choose your superannuation fund and your employer is obliged by law to make payments on your behalf into that superannuation fund every quarter.

If they don’t, you should contact the Australian Taxation Office (ATO).

In some cases, for example where you are covered by a particular industrial agreement, you may be obliged to use a particular industry-based fund.

If you don’t choose a super fund, your employer will pay your contributions into a MySuper account.

These are very simple, low-fee, funds, though as they won’t necessarily offer the best performance you should always spend some time comparing the options and making a positive choice rather than going for the default.

All super funds will charge fees for administering your account but the amount of fees charged varies widely.

As the fees are paid out of your super fund, high fees have the potential to dramatically reduce the amount you are able to live on in your old age so it’s worthwhile choosing a fund which combines reasonable fees and a good investment performance.

When you join a super fund, make sure they have your tax file number so your super contributions are taxed at the correct – low – rate.

You can check your current super balance anytime either via your super fund’s website or via myGov.

If choosing the latter route, you’ll need to link your myGov account to the ATO.