Given I’ve spent a few years looking at salaries and superannuation empirically I’ve decided to do a light analysis here to summarise what I think the current state of affairs looks like.
Why do this? Because ‘is it enough?’ is a real question. Not in the ‘I want to win lotto and then I’ll be rich enough’ sense, but in the sense that what you’re paid, or retire on, are driven more by ‘market value’ (i.e. statistics) than anything to do with you personally.
My anecdotal example of this is that if I went to be employed in my mid 30’s in IT tech support I’d probably be offered circa 85-95K per year. As the same person if I go to get employed in IT tech support today, in my mid 50s, I’m lucky to be offered 70K. Right or wrong, this is the prejudices and biases of ‘the market’. My ‘value’ is what the market says it is - not what I am, or think I am, actually ‘worth’.
So, based on 2016 census salary data, which is the most recent comprehensive data we have for all personal (single) earnings across Australia, we can graph total earners in each earning range. That is the chart below - Personal Weekly Salaries.
Roughly speaking this is percentage of earners (each line, Y Axis), earning within each weekly (annual) salary range (X Axis).
What might be surprising to you is that well over 70% of people earn less than $65,000 per year. If you earn >$91,000 per year that puts you in the top 15% of earners nationwide.
If you retire, singly, on what the ASFA claim is a ‘comfortable standard’, at $44,412, you will be retiring fairly close to the median income for most working Australians. That’s worth stopping and thinking about.
By comparison, a single aged pension, will net you circa $25K per year ($952 x 26)
But Business Owners are rich aren’t they?
Well.. let’s look. According to ABS 18-19 all businesses data, graphed below, you can see almost all business have a total sales turnover of less than 2 million dollars.
If we’re generous and say a business runs profits of between 10-25% then a $2 million business could conceivably make its owners $200-500K per annum. Although $100-200K profit on $2M turnover is more likely I think you’ll agree.
Looking at the bigger picture, the graph below shows that >1.14 million businesses in Australia (>55% of all businesses) have less than $200,000 total sales turnover each year. Using our previous generous example of 10-25% profit that means conceivably, at best, these businesses would earn $50K profit per year. More likely on $200K turn-over they’d take home $20-35K profit.
Of course, all business owners know that the ‘real pay-day’ is if, and when, they can build up and sell the business - reaping the capital gains that represent their work invested in the business over many years.
For the purposes of this illustration though it is enough to say that the vast majority of Australian small businesses are probably struggling to make as much profit annually as your median salary earner takes home (say, $50K)..
So, no, I’d assert that bulk of business owners are not rich, in fact they are probably earning well less annually than your median salary earner.
Household versus Single incomes
What we all know intuitively is that most people are not living on the $50K median salary - because most households are now double-earners.
Revisiting the all earnings salary graph we can extrapolate, by doubling the figures, that most households (>70%) are, in practice, living on joint incomes amounting to between $60-130K per year
Medians and Averages
These numbers also accord with 2016 median salaries of $47692 and 2016 average salaries of $81249 (1533 x 53, full time adult average weekly earnings) per annum. At least to some extent the graph also shows why the large difference exists between median and average salaries (given the large bias of populous earning <65K per year).
These numbers also back up the rule of thumb that you should be looking at approximately 60-75% of your full time salary for retirement. ASFA single retirement basic figure of $28254 is 56% of $49805 median full time earnings. The ASFA ‘comfortable’ figure of $44412 is 89% of the $49805 median full time earnings figure.