Results are shown in today’s dollars, which means they have been adjusted for the effect of inflation over time. We have assumed a default rate of inflation of 2.5% over the life of the model.
In simple terms, $1 today will not have the same purchasing power as $1 in the future, as goods and services typically cost more over time. The figures in the above graph are shown in today’s dollars to make it easier for you to compare the amounts against today’s living costs.
The estimated retirement income is calculated on the member’s superannuation balance at the start of retirement. The calculation determines how much can be drawn each year (in today’s dollars) for the superannuation balance to run out 5 years after the member’s life expectancy (figures provided by the Australian Institute of Health and Welfare), and assumes no other sources of income (e.g. income from non-superannuation assets or Centrelink benefits).
Balance: $5,000 which comprises the rollover from other super funds
Salary: $50,000 pa reduced by 50% when working part time
Superannuation Guarantee: 9.5% (no SG during parental leave taken over 3 full years from age 35)
Salary Indexation: 3.5% pa
Salary Sacrifice Indexation: 3.5% pa
Investment Option: 100% of account balance invested in: Growth (FutureSaver) returning 6.25% pa from 25 to 67 years of age. Capital Stable (Flexible Income) returning 5.55% pa from 67 years of age
All information provided in this illustrative case study is based on the specific circumstances and assumptions detailed, and is not intended as advice or a guarantee of any outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change.
Investment return assumptions are for illustrative purposes only and for simplicity assume an average rate of return each year throughout the investment period. Actual returns year on year may be negative and may vary materially.
In what year does the case study projection calculation start (for example, she joins VicSuper at age 25 on 1 July 2018?)
This is correct – assumed that Tamara’s birthday is 1 July each year
No withdrawals ever made?
No – the scenario is based on accumulating as much wealth as possible before starting to draw an income.
When are investment returns credited to members’ accounts? Annually?
Investment earnings are applied to the starting balance each year, credited to the closing balance annually.
When are contributions assumed to be made? Quarterly in arrears?
Middle of each year
When are fees assumed to be deducted? Annually?
Fees and taxes are factored into the net investment return – there are no additional fee amounts to be deducted.
What fees are taken into account?
All fees and taxes are factored into the net investment return.
- Investment Fee – based on the Investment Option the member is invested in and calculated as part of the unit price (not directly deducted from a member’s account).
Account Keeping ($1.50 per week) and Administration Fees (0.19% per annum) – capped at a combined total of $125 per month per account, deducted monthly in arrears from a member’s account.
Indirect Cost Ratio – based on the Investment Option the member is invested in and calculated as part of the unit price (not directly deducted from a member’s account).
Are deductions made for insurance premiums? [Yes/No.]
No – this is the same for both scenarios (i.e. with and without advice).
What's the calculation methodology?
Noted in answers above and supporting ‘summary of projections’ document
Using the starting account balance and salary, the contributions, earnings and fees are calculated using 30 June data each year to derive the closing account balance at the end of each year. The closing account balance for the previous year is then used to calculate earnings and fees on the account in the following years with the process being repeated for each year.