How much do I need to retire?
It all begins with an idea.
"45 years filling out spreadsheets, only to end up playing bingo in a nursing home? No thanks." – @stackhodler
When you start thinking about retirement after a long career, you likely envision spending quality time with your kids and grandkids, traveling the world every year or two, living in a comfortable home you own, and maybe driving a new car every few years.
However, if you look at the guidance provided by ASFA's Retirement Standard, you might be surprised by how conservative their estimates are for a "comfortable" retirement. For additional tools and analysis, check out Super Guru.
Bitcoin presents a unique opportunity to outperform traditional managed funds, boasting a compound annual growth rate (CAGR) of nearly 50% over the past decade. That's more than 5x the performance of traditional superfunds. While past returns aren’t a guarantee of future performance, Bitcoin’s fixed supply and growing demand make it an appealing option for those looking to maximise their retirement savings.
What are the incentives?
It’s often a good idea to understand the incentives in a situation to be able to critically think through your options and set your self up for success.
In Australia, superannuation funds are regulated by the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC). Superfund performance is governed by several rules and regulations aimed at ensuring the protection of retirement savings and transparency of performance.
The Your Future, Your Super (YFYS) Performance Test, introduced in 2021, requires APRA to assess the performance of MySuper products (default superannuation products) annually. This test compares the net investment returns of a fund against a benchmark tailored to the fund's asset allocation. Key aspects include:
Underperformance Threshold: If a fund underperforms the benchmark by more than 0.5% over a rolling 8-year period, it fails the performance test.
Member Notification: If a fund fails the test, it must notify its members, and the fund is listed on a public performance comparison tool.
Consequences for Underperformance: Funds that fail the performance test for two consecutive years are prohibited from accepting new members until they improve their performance.
Bitcoin in an SMSF is opting out
Given the above regulation Managed Superfunds are incentivised to invest in a balanced, diversified portfolios of investment products, to perform as a herd with their peers with a time horizon of 2 years.
But this doesn’t make sense, your retirement is 20, 30, 40 years away, wouldn’t you want to invest in something that will outperform over the long term, that has a fixed supply so it can’t be debased, that is un-confiscatable and without any counterparty risk?
More importantly as @BeachesHODL points out:
“How many people have met their superfund manager for a beer 🍺 to talk about how their quality of life is going to be in retirement?
These managed funds are taking fees to manage your future and very few people think about the lack of care these funds actually have for you in your retirement.
The answer is, you don’t know your fund manager.
So, why would you allow a total stranger, you’ll never meet, to manage hundreds of thousands of dollars of your money and your future without having a say or mechanism to hold them accountable?”
So how much do you need to retire?
As you might expect, there isn’t a one-size-fits-all answer since everyone's personal circumstances differ. However, in my view, the commonly cited guidance from ASFA significantly underestimates the amount you'll need—by as much as five times, at least.
When you factor in inflation, rising living costs, currency debasement, and the possibility of living for 25+ years after retirement, a starting figure of $3-4 million in today’s money should be your baseline target.
Once you have your target number, calculate how much you’ll need by working backwards from your desired retirement age, reducing the target by about 8% per year until you reach your current age. If that lines up with your current super balance, congratulations—you’re on track with your managed fund.
If not, and the gap is substantial, it may be time to consider setting up an SMSF with Bitcoin as part of your strategy!