Recent news reports about 4.6 million Australians were alarming for retirees. The news was that more than one quarter of us are ‘too poor to retire’. We tracked down the research which led to these widespread TV and press reports. It came from comparison website, Finder and was based on a survey of 1063 people. The results also showed that:
- 23% of respondents think they won’t have enough money in super to ‘get by’ once they retire
- 27% report that they don’t know how much super they have
- 22% believe they will be ‘okay’ but will need to reduce spending and
- only 17% believe their super will be enough to live off.
At first glance one could easily be rattled by these dire warnings. Nearly five million people is far too many to be ‘too poor to retire’. But if we unpack this research and reported conclusions, it’s rather facile. The sample size was just over 1000 people. Extrapolating from this number across the entire population is a bit of a stretch.
So how do you respond to these types of headlines? Do they get you down? Do you ignore them? Or could they be treated as useful triggers to think about your own situation and how you are placed to live a fun and purposeful retirement? Rather than being discouraged, we think that they present a great opportunity to review your own retirement health.
Australia’s retirement system
The Australian retirement income system is very robust.
In fact, our system is so good, it’s been described as ‘world class’ by no less an organisation than the World Bank. Our ranking in most Organisation for Economic Cooperation and Development (OECD) findings which compare retirement income across the 38 member countries and the Mercer Global Pension Index tends to be around 5th or 6th. These rankings are based upon the retirement income pillars of Age Pension, superannuation and private savings, which can then be complemented by work income and home ownership. Put simply, Australian retirees have a rock solid safety net of Age Pension income. Some 80% of retirees will benefit from this income at some point in their retirement. This alone challenges the notion that anyone could ever be ‘too poor’ to retire.
Super alone is rarely the solution
The reported response that 17% of those surveyed believe their super alone is not enough to live off is misleading. It’s also a common misunderstanding of the role super plays in most peoples’ retirements. Super was introduced in 1992 as a source of savings which would ultimately convert to income to complement the safety net of the Age Pension. As mentioned above, this is what happens in 80% of retirements. Yes, some may start by living purely off super savings, but this usually changes somewhere along the way. And other savings and sources of income – including work – will also add to the mix.
But there is another misconception to tackle here. Looking at your super savings, guessing your lifespan and then dividing your super by the number of years you have left is a crude calculation which leads to wrong conclusions. Your super and savings will grow over the years, based on the power of compounding. Some savings may be withdrawn, but the balance will still increase. And at some time an Age Pension entitlement will probably slow the rate at which you reduce these savings. The actual sums are far rosier than most people predict. If you are a property owner your overall wealth will also increase over the long term. So before you think you will ‘outlive’ your savings, it’s important to calculate accurately. You will probably be pleasantly surprised
In summary, the disturbing headlines of millions of people too poor to retire are more ‘click bait’ than common sense. Those who stay informed and aware of the trajectory of their retirement savings are unlikely to be unsettled by this type of commentary. They are also generally more confident that their savings will last the distance.
There are many different ways Retirement Essentials can support members in need of advice or guidance about their retirement savings. In particular, the following consultations could set your mind at rest about the sustainability of your retirement income:
- Retirement life check (Discuss goals and options to better enjoy your retirement)
- Retirement Forecasting (Compare two scenarios of how your assets and income will look during your retirement journey).
- Understanding more about super (Assess the options to help make your super work better for you).
I agree to a point on your article but I am 66, have been a single Mum and self employed over 25 years so have not been in a position to contribute much to my super fund ($60,000). I married again in my early 60s. Hubby is also self employed. We both have lots of ailments due to hard manual work on our bodies. We are just above all thresholds for any assistance at this or any stage for Centrelink assistance. He is 62. We are living on our savings which are being eaten up in medical costs and cost of living, insurances etc. as we can’t work. Asset rich but that’s it. Not well off just careful with our hard earned money. I think after all the taxes we’ve paid we should get something.
Agree!! Self funded retirees are victims of the system
I fully understand Sally’s predicament. I was forced to retire recently due to ill health and will only have about $100,000 in super and pay $450 per week in rent. My super allied with the pension will only last for about 6 years
Move to Thailand where you can live a good life and rent a condo with a pool for around $ 500 month ,
Retirees who receive a pension, should be permitted to work and keep what they earn without being penalized as they will be taxed on their earnings. This is very much so, with retirees who have NO SUPER. Can you just imagine living on the pension even with the current maximum a retiree could eat without affecting the pension? If this is so, how could anyone say that we Australians have a very good pension system? This must be a JOKE!
Most of the tax retirees, who work and pay taxes, get the bulk of this back when they do their tax returns
I don’t think so, every time I do my tax I have to pay about another $2000 extra in tax because of interest on my managed funds, it seems you are penalised for saving your money so that you are not a drain on government resources!
For low to middle income earners Super doesn’t work. High contributions prevent us paying off mortgages and we rely on credit for unforeseen expenses. I understand the industry advocating for itself. Keating set up the system regardless of the clearly identified vulnerability of low income earners because without our contributions the system was not viable. Super needs an overhaul.
yes, like the ‘incentive’ to put more dollars into super when you are a low income earner..??? As if a low income earner has any extra funds to put into super !
There are so many variables in assessing if people will have enough to live on in retirement years that I can’t possibly see how 1000 people can show an accurate result. The average person does not earn $90000 per year and more than 50% are therefore low income earners. Not all have super, not all have savings and no one can live on the old age pension by itself these days of high cost of living.
Hi V, yes an accurate result is not always possible as everyone’s retirement is different for them. People retiring often have a combination of assets and income and are often seeking reassurance to provide an understanding of how to best utilise what they have, to fund their retirement spending levels throughout their retirement years.
It’s our role to help those planning for their retirement to feel supported and in control of their money, when they are in need of advice or guidance. For example, dividing your super by the number of years you have left is a crude calculation which leads to wrong conclusions. Your super and savings will grow over the years, based on the power of compounding.
Sometimes just having someone to talk through their options is comforting to avoid making mistakes in claiming their Centrelink entitlements. Multiple booking options are available to assist, and can be found here
Reading the comments here and the article they are commenting on shows me that most have not discussed their predicament with an adviser or even their super fund. The best way is to look at your goals – what do you want in retirement? Then take those goals to an adviser and PAY to find out how those goals can be brought to fruition. Simply complaining and pointing fingers will not in any way assist you. Check out the help here or look at moneysmart site and choose an adviser. Stop complaining and take some action.