The federal government is not in the business of providing financial advice.

But when the government sets superannuation contribution levels at 9% of average salary by implication that becomes an anchor point for millions of Australians when thinking about how much to save for retirement.

Yet industry analysis has repeatedly shown that while 9% is a good start for many people it may fall a long way short of providing a replacement income stream for many people – in particular those who have not enjoyed super for their full working life.

This makes the debate that is gathering steam at the moment over the federal government’s proposal to raise the super contribution level from 9% to 12% in 2013 timely.

It also highlights the risk that millions of investors may be taking – unintentionally perhaps – with their retirement lifestyle.

The question for investors is around the decision to save more today in order to have more to spend in their retirement years. The adequacy question revolves around how much will be enough to provide (say) around 75% of your salary at the time of retirement.

The adequacy issue has been widely canvassed and discussed but perhaps the other side of the debate - the risk factor - has not been spelt out as clearly.

If you choose to save more today then budgets and lifestyle can generally be adjusted to accommodate that – the notion of cutting today’s cloth according to tomorrow’s needs.

The idea of denying yourself today in order to ensure you are in super’s comfort zone may be unappealing – but the alternative could be a lot worse.

By opting to save more you build in some increased protection against the vagaries of investment markets. If markets deliver strong returns then you will find yourself at the point of retirement with more money than you had expected. That is a risk most people would happily accept.

But the reverse has a much harsher outcome. If you arrive at the time to retire and markets have not delivered average rates of return – like the last three years for example – then you are in a much tougher situation because the ability of most people at that time of life to make up the shortfall is limited.

There are many things to do with investing that are either uncertain or simply unknowable – such as future returns. But the thing that is completely certain (and irreversible) is the ageing process.

You know with absolute clarity when you will turn 65 – or whatever age you have decided to retire at.

As we emerge from the global financial crisis it will be important to remember the lessons markets have taught us over the past three years. One of the key points is simply that very few things – Australian house prices included – can be taken for granted.

Consider the case of a 50-year-old man who has $150,000 in super today. He wants to retire at the traditional age of 65 and is contributing the minimum 9% from a salary of $75,000.

Celebrating his 50th birthday has turned his attention to retirement and the question of how much he will have at age 65.

He uses an online superannuation calculator** to model his current portfolio at average rates of return for a balanced portfolio until age 65 and then lowers the risk profile in retirement with a conservative asset allocation. Rates of return for a balanced portfolio are assumed to be 8% while the conservative portfolio is projected to return 6.5%**.

He estimates he will need a retirement income equal to 75% of his current salary in today’s dollars (i.e. adjusted for inflation).

The outcome seems reasonable – he will have enough money to live on until age 92.

But what if the rates of return are lower? By dropping the balanced portfolio projected return to 6% and the conservative portfolio to 5% his retirement savings will run out 10 years earlier at age 82.

Small adjustments clearly make a big difference over longer time periods because of the compounding effects.

However, if he was to begin making salary sacrifice contributions of 6% even at the lower rates of return his retirement pension would again be expected to last until he was 91.

Other people may be comfortable with the idea of a reducing income level as they get older but the key point is that the right level of superannuation contribution is dependent on your individual needs and lifestyle.

So while the government may be suggesting 12% is a good level don’t take it as free financial advice. A contribution level of 15% is what many actuarial studies suggest is more appropriate simply because it builds in a wider safety margin in the event that markets experience an extended period of lower returns.