Too poor to retire

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: