Retirees spending money

Surveys tell us that the lifestage of retirement can be one of the most contented periods of our lives. One widespread positive sentiment is the sense of control over your own destiny, no longer having to answer to an employer’s needs Monday to Friday.

But getting older also has some drawbacks, and the continuing debate about older Australians having it better than other generations can really grate. So, too, can the haranguing tone taken by some organisations when it comes to super. It seems one day retirees are slammed for spending too little, and the next they’re told they’ve spent themselves out. When these statements are shared as ‘research’ it’s really time to call this information out. 

What’s the truth here? Are retirees too conservative in their spending habits? Or are they literally running out before they die? It’s time to let some facts get in the way of these latest stories.

The recently convened Super Members Council (SMC) released a report at the end of February which stated that two-thirds of retirees draw more than minimum amounts from their super and that 80% of men and 90% of women have no super left when they reach their life expectancy age. The council is a group of profit for members super funds and represents a combined $1.4 billion in super savings invested on behalf of 10 million individual Australians.

When releasing the report, CEO Misha Schubert said,

‘Australians spend all their super in retirement, draw down on super more than the minimum required, find retirement and super overly complex, and crave more information from their funds on how to navigate the system, new research shows.’ 

These findings are supported by research released in April 2021 by the Association of Super Funds of Australia (ASFA) which found that more than 90% of those Australians aged 80 plus had no super in their accounts in the four years prior to their deaths. Regarding younger retirees, ASFA reported more than 60% of those aged over 70 had no super left either. ASFA noted that its report was based upon Household Income and Labour Dynamics in Australia (HILDA) data as well as that of the Australian Tax Office (ATO).

Yet these numbers are at odds with the overview of super spending which is more generally accepted from the Treasury’s Retirement Income Review (RIR) which reported in 2020. The RIR noted that around 90% of retirees drew the minimum amount required and died with much of their super balances untouched. The RIR drew its information from a wide variety of recognised sources including Treasury, the Productivity Commission, the Grattan Institute and the Department of Social Services. 

Who can you believe?

A simplistic reading might suggest that the 90% who were not spending in a 2020 report has changed behaviour and now this group of retirees is spending fast. But that’s unlikely. People’s financial behaviours don’t alter that radically or quickly.

One question mark is that the analysis in ASFA’s report assumes that all people had superannuation at retirement that they drew down and exhausted. For many of today’s retirees, that may not be the case. 

  • Compulsory superannuation was only introduced in 1992. Many of today’s retirees – particularly older retirees –had little to no superannuation at the point of retirement. 
  • Many of today’s retirees withdrew their superannuation as a lump sum at retirement – particularly if they had a low balance. 

Future retirees are much more likely to have larger balances that they access through income streams.

The larger evidence base used by the RIR shows that retirees who access their superannuation through income streams do so slowly, and that most retirees leave a large proportion of their wealth as a bequest.The RIR evidence also reveals that even those with no superannuation – ASFA’s measure of exhausting savings – are still likely to increase their total savings and wealth across retirement. 

The RIR also revealed that retirees lack the confidence and support to spend their savings, resulting in a poorer quality of life in retirement. And that this problem will become more prominent in the future as people retire with larger superannuation balances.

If there is any common ground between the reports it’s the need for more support for retirees so that they are comfortable in their management of their own spending levels. Who provides this support is the question – to date there has been little practical help coming from either the government or the super funds. Misha Schubert’s comment that people crave information is correct.

So that’s the research

But what does it mean for your money management?

How do you smooth the bumps in your own retirement income and spending so you enjoy a relaxed, stress-free retirement journey?

The main questions retirees ask concerning super are:

  • When I can get my hands on my super, how much do I withdraw?
  • Should it be in a lump sum or a retirement income stream? 
  • If the latter, is an account-based-pension the best form of income stream?
  • Should I use it to pay down my mortgage?
  • Do I stick to the government minimum withdrawal amounts or more?
  • And the one we see most commonly, how does my super work alongside the Age Pension 

Knowing the best answers for your situation will set you up well for your retirement.

Of course the answers will vary for each and every retiree, depending upon a lot of factors including marital status, home ownership, savings, assets and more.

But there are really useful ways for individual retirees to project how your money will last depending upon varying withdrawal scenarios. Seeing and comparing these results is very empowering.

Here’s a quick example:

Sarah is single, will turn 67 in the next month, and has the median amount in super (female, $204,000).   

Retirement Essential’s safe spending simulator suggests Sarah will qualify for a full Age Pension of $29,023 per year (we are using the new March 2024 rates), plus the Pension concession Card. If she withdraws the minimum amount required by law from her account based pension (5% for her age) of $10,400 she will have $39,423 to spend in the next year.    If she maintained that spending level she will be very unlikely to run out of money before age 85 and would most likely still have some savings until around age 94.

If she doesn’t need all of that money she can save the excess and can also make some adjustments if she needs more money for renovations or lifestyle requirements. 

It’s not easy however to do these sums accurately across 10 or 20 year spans.

But it is possible, using our safe spending simulator which factors in Age Pension entitlement, compound interest and likely super returns to see how your money can fund a comfortable later life.

Understand more about super by working with a Retirement Essentials adviser ‘in real time’ checking projections and learning rules along the way.

Are you a super spender or saver?

Does any of the quoted research resonate with you?
Or do you think every retirement has its own set of rules?