Retirees with far less than $2 million in superannuation face extra tax bills after the superannuation changes announced on Friday.
An examination of the federal government's announcement shows the impact will be far broader than the forecast that only 16,000 people with $2 million or more in super will be hit by the tax on retirement earnings.
The booby trap for those with less than $2 million in super is the fact the new tax will apply to all earnings above $100,000 a year from 2014, no matter the size of the nest egg.
The calculation on the low number of people facing the new tax is based on a 5 per cent rate of return from investments, leading to the $2 million figure.
But in a good year a super fund invested in a growth option of shares might return as much as 20 per cent and therefore earn more than $100,000, triggering the new tax on a balance of just over $500,000.
And one-off capital gains are counted in the total of earnings to be taxed. This means smaller self-managed funds could face the tax if the fund made, for example, a $120,000 gain on the sale of a $300,000 property.
Large capital gains can be expected as you near retirement, especially when switching from the saving to the payout phase.
At the average retirement age of 61.5 years, you would need more than $1 million in super if you had no other assets, and owned your home, to sustain a comfortable retirement without having to go on the pension. This needs $56,339 a year, giving you "a reasonable car, good clothes" and "occasional international holiday travel", according to the Association of Superannuation Funds of Australia.
However, the median super balance for a woman near retirement is only $60,000. For a man it's $160,000 - still not within cooee of the money needed to fund a 25-year retirement.
The gender gap is due to the lower salaries paid to women, many of whom also leave the workforce for a period raising a family.
The ASFA says for a modest retirement, you need $32,555 a year. The maximum pension for a couple is $31,689.
A rule of thumb showing how much in super will pay what income in retirement is to divide the balance by 20 - or five per cent of the total amount, representing likely long-term earnings. So $1 million would give you $50,000 over 25 to 30 years without going on the pension.
It's just as well most Australians will have other sources of income outside super by the time they retire, or perhaps can expect an inheritance, and have the mortgage paid off.
And there's always the pension. A retired couple can earn more than $70,000 a year and still get a small pension. Even under the asset test, you can be worth almost $1.1 million, not counting your home, for a part pension.
Super is still the easiest way to save because the entry tax of 15 per cent is lower than the top marginal rates, earnings are taxed at only 15 per cent and with no tax at retirement.
There is a $25,000 limit on salary sacrificing to super, including the 9 per cent employer levy. This rises to $35,000 on July 1 if you're over 60 (and a year later if over 50). And the employer contribution will go up to 9.25 per cent of salary, on its way to 12 per cent by 2020.