Paying off your mortgage and ensuring you’re in a high-performing superannuation fund will put you on the right course for retirement.

But make no mistake, if you do decide to finish working before becoming eligible for the aged pension, it can be very expensive.

You can receive the aged pension at age 66 or over, depending on when you were born, and the maximum payment is $22,575 a year for singles or $34,034 for couples.

Grattan Institute economic policy program director Brendan Coates said $200,000 is a good rule of thumb when it comes to how much you will need in retirement if you earn close to the median annual Australian salary of $55,000 and wait until you receive the pension.

But if you want to stop working sooner, you will need about an extra $40,000 for every year you retire before accessing the age pension.

These estimates are based on replacing about 70 per cent of your pre-retirement income, assume you are someone who is nearing retirement, and should give you the same standard of living in retirement as you had during your working life.

“Retiring early is, to put it bluntly, expensive,” Mr Coates said.

“Even though you are going to get a return on your investments during that period, you don’t get any access to the aged pension.”

Mr Coates said home owners don’t need a massive amount of extra savings in retirement – and younger Australians will be fine if they own their home and stick to the 10 per cent super contribution rate – but Australians could be at risk of financial stress and poverty if they stop working and don’t own their home.

“The No.1 question for people retiring early is will they have paid off their house?” he said.

“If you are still expecting you will have to pay rent in retirement then that is probably the biggest risk to being comfortable, whereas if you are confident you will have paid off your house, that is the first step towards being able to consider retiring early.”

Paying off the mortgage is crucial to a comfortable retirement. Photo: Getty

Mr Coates said the aged pension system heavily favours home owners over people who have instead invested in shares, as money invested in shares is counted towards the aged pension assets test compared with only about the first $216,000 of any home equity.

“If you have got $500,000 in a house or $500,000 in shares, you’ll get a much greater aged pension entitlement if that money is in a house,” he said.

Mr Coates said it was also important to ensure you are in a high-performing superannuation fund.

You can compare super funds by using the tax office’s YourSuper comparison tool, which is accessible via your online MyGov account.

The Association of Superannuation Funds of Australia estimates the lump sum needed at retirement to support a comfortable lifestyle is $545,000 for a single person or $640,000 for couples, assuming a partial aged pension.

This benchmark is published by the financial regulator, ASIC, on its Moneysmart website.

But Mr Coates argues these figures do not reflect reality for most Australians because they are based on the lifestyles of the richest retirees.

“They are scaring people about how much they need,” he said.

“Obviously there are people in retirement who are struggling and who are in poverty, just as there are people in poverty before retirement.

“(But) the average retiree … doesn’t have $540,000 in super (and) they are the most financially comfortable cohort in the community – they have lower rates of financial stress, lower rates of poverty and are more financially satisfied with their lives than anyone else.”

Mr Coates said if you retire at age 67 and are relying just on your compulsory super contributions and the aged pension, you are likely to have a better living standard in retirement than you did in your working life.

“People should be a lot less worried about retirement than they are,” he said.

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