The Morrison Government has recently urged retirees to spend more of their retirement savings, particularly any super they might have.
Why do they want retirees to spend their super?
The Government’s recent Retirement Income Review highlighted that many retirees underspend in retirement and typically retire with most of their wealth intact. It is estimated that by 2060 one third of payments out of the superannuation system will be in the form of an inheritance. The Government, and Treasury in particular, really doesn’t like this as the tax incentives to put money into super are meant for retirees to help generate an income in retirement and not to create assets to be passed on to the next generation.
Treasury is also of the view that those retirees that have savings and investments place a high value on the security these savings provide them. According to Treasury, retirees don’t want to consume their capital and instead just spend the interest or earnings. The implication of this is that retirees leave an inheritance when they die and have denied themselves the quality of life they might otherwise have enjoyed.
So why don’t retirees spend more?
We have heard a few reasons. Here are some of the major ones.
- Some people fear the age pension won’t always be around so they keep something aside. The review indicated that more than half of people in surveys didn’t believe the age pension will still be around when they retire. Young people are even more pessimistic and only 37% of those under 55 think the age pension will still be around when they retire. We are much much more optimistic. Our view is that the age pension is very secure and will continue to be so into the future. It is an extremely important source of retirement income for most Australians and we can’t see any Government getting rid of it. We will write more about that in the coming weeks.
- It is difficult to know how much of your savings you can safely spend if you don’t know for sure how long it needs to last. This uncertainty leads many to underspend as a form of insurance policy. There is nothing wrong with this up to a point but it appears many take it too far and live much more frugally than they need to.
- Some people want to leave an inheritance
We think retirees should be able to live their best possible life but managing the uncertainties of spending, life expectancy, and fear the pension won’t last, is difficult.
So what do you think? Do you agree with Treasury’s view that many retirees underspend and what do you think you are likely to do? You can make your comments below.
Governments have demonised retirees for so long now that no-one trusts them, especially with our money. That the pension system is so complex, and dealing with Centrelink so difficult simply adds to the problem.
Treasury’s opinions in this article are the perfect example. A retiree’s superannuation is there money; they can spend it any way they choose, including leaving it as an inheritance. You can’t get the full pension while you’ve got it, anyway.
The way house prices are rising and COVID we have to conserve our funds to help our kids otherwise there will be too much poverty and homelessness.
Exactly! Absurd costs of real estate now!
Rising house prices are a function of affordability. The more that the market can afford to pay, the higher the amount we have to pay. Supply and demand.
Universal pension for all.lower the Centrelink staff by 3/4. Use tax system instead of income asset tests.
Keep as much cash as you can induce card will not give it to you.
The government needs to tax wealth inheritance – e.g. death duties or the like, to dissuade the asset rich, cash poor from extracting what they can from the aged care pension while locking up their assets. With property prices escalating, abolishing tax incentives like negative gearing, and taxing the sacred cow “family home” are essential, given the generation following cannot afford to buy unless they get family $$$. Self perpetuates the problem.
This would only perpetuate people holding on to their super – otherwise they would lose their home ie the house they live in because they can’t afford to pay the tax on it.
I am a home owner – still paying off a mortgage, if I had to then pay tax on my own home- annually, on top of exorbitantly high insurance, I would not be able to afford to live. There are no rentals so I would be looking at living out of my car.
It is time the unemployed were made to get out and do some work! At present they have a better lifestyle than the ordinary worker or the retiree. This has to change!
Exactly- you get it – I’m on the same page. I’ve studied and then worked hard all my life to build an inheritance for my family.
Governments Federal and state must be held accountable for our money – also there are too many bureaucrats
The biggest factor is that you don’t know how long you’ll live and with people living longer you have to be more careful with your superannuation/pension income. Also surely they must see the money they’re saving by not paying a pensions, and in cases where sufficient super is set aside, retirees must fund their own (increasing) medical bills thus saving the government even more money.
This is at the crux of the issue for me. Save for your retirement so that the totally unfair pension assets test can then prevent you from receiving a state pension. The medical benefits denied by not having a pension card only exacerbate the issue from a health viewpoint.
I agree wholeheartedly with Roger Walter.
I have spent approximately 80% of my working, ie tax-paying life in Australia and feel very fortunate that I’ve been able to live that life in our country. However, I still receive a part-pension from my birth country (UK) because I worked and was taxed accordingly whilst still in my youth. This, to me, fair and uncomplicated system is giving me back that which I formerly contributed without any of the well-documented Centrelink complexity. I believe that many other countries employ this system which I think is termed a Universal Pension.
Retirees ARE careful with their superannuation spending, savings which took their working life to create in order to see them through life. With a goalpost-changing government pension policy, who knows from which direction the next nail is coming from?
What’s the difference whether Retirees spend it or their kids spend it ? ( As they surely will !! )
If we leave our super to anyone other than our spouse (or dependent children which I would think few of us have at our age) it is taxed in the main at 17%.
But I agree that the biggest problem we have is that we don’t know how long we will live plus we don’t know if we will require expensive home help services.
The part about the Government wanting us to spend our super I do partly agree with, we earned it , we saved it and it is ours to do with what we will but, what do you spend it on? One can only go on so many holidays/cruises and most of us own our homes and don’t need any new furniture or white goods or cars.
I give money to my only child now from time to time because now is when she needs it not after I die and she will be relatively old herself. This gives me pleasure and enables her and her husband to have a better standard of living.
I think that it is likely, in the future, that the government will at some point find a way to tax our super. As their desperation for revenue increases and they see this vast pool of money it will be very tempting.
I am waiting to see in the next years when super finally reaches full maturity what effect it has on the aged pension. Will we see the majority have enough in their super to not require any pension? This was the plan and I am hoping that it is so.
So true. Can’t spend it – can’t give it away
So what do they want?
Government are the problem not the solution.
Uncertainty is the problem
in government policy
How long will I live?
We don’t all live in multi million dollar houses.
We have the some of the highest health care costs in the world
They tell you”it’s your money” but they want to know every cent you have/spend.
Agree, the government has shown time and again that they are incapable of having long term bipartisan agreement on very little that will improve and support the lives of citizens let alone care about the aged.
We should vote only for those that support and action worthwhile policies in a timely manner. One pension for all, regardless of who you are or what you have done.
One super contribution rate for all.
Enough of the rhetoric, less blahfests on the media, action speaks louder than words
Governments have made it near impossible for many of our kids to get a decent paying job with a career path. For years they have been subjected to being screwed over with wage suppression, conditions being taken away, casualisation etc. .
All whilst paying themselves obscene wages and conditions and lining the pockets of giant multinationals who take Australia for every cent they can get out of it.
For many of our children the inheritance is the only chance they have for providing a modest life for them and our grandchildren.
Take a hike SCOMO, we say !
I have recently ‘stopped work’ at the age of seventy, have savings in the banks but are providing no income I could live on. I pulled most of my super out at the beginning of COVID when I saw the dive in market values and put it in the bank. So I am living off my savings which of course is slowly depleting. Both my parents lived beyond 100 years of age so how much will I need to live on … as with others I can only be super (pun) cautious because with the normal bills, medicals, insurances, food, rates etc how much will I need and how long will my money last without any other income stream. That’s the common issue … how much and how long …and not sure anyone can sufficiently answer that. I can also see a situation where I get to an age where I don’t or can’t travel and spend up, so any funds will simply accumulate, except to pay for in home support!
Trust the government that changed pension reduction from $1.5 to $3 per $1000, a rate equivalent to 7.8% on non-interest earning “assest”??? No way.
My wife and I set up our SMSF in 1983 and retired in 1998. Since those days we have witnessed at first hand what happens when you invest your super in the stock market and what happens to elderly relatives near the ends of their lives, namely a father, both our mothers and an aunt. None of the latter had any super. All lived into their late eighties at least. One died at 90 and another just short of 100. All ended up depending solely on the Age Pension to survive their last 10 years or more, while three of them lived on valuable but inedible properties.
We are now aged 83 and 76 and have no idea whether we will live for 5, 10 or 20 more years, nor whether we will die after suffering years of illness and high medical expenses, nor whether we will spend our last years in retirement home. So we like to hold onto as much of our assets as possible, to protect ourselves against investment downturns, as well as the other things.
We are advised to invest our super into a mix of cash, shares, managed funds and property (if you can afford any). We have witnessed and been stung by major stock market crashes in 1987, early 2000s (dot com bubble), 2008 (global financial crisis) and March 2020 (the onset of the COVID pandemic). The 1987 one was particularly instructive. Although the crash was anticipated by many experts for weeks beforehand, all the managed funds, with one exception, marched over the precipice in lock step. Why did they not sell? It was mainly to keep their unit values and predicted values high, to attract new customers. Also, in today’s markets, the funds’
portfolios are so huge that they cannot sell because that would cause a panic.
In addition to the other reasons for holding onto our assets, there is the question of whether we will move into a retirement home before we die. If we have to, we would like to go into one of the up-market ones, but they are expensive and have onerous financial terms and conditions – and there are many sharks in the water…
Out of our four elderly relatives, one stayed at home, supported by part-time helpers, two had connections to the Freemasons and the RSL and were able to move into well-run not-for-profit homes in return for part of their Age Pensions. The fourth, our aunt, was not so lucky. My wife, our aunt and I witnessed at first hand the “spin” of the for-profit places and the miserable conditions that prevailed behind the scenes. One of the residents died unaccountably by falling on the floor after being pushed out of bed in the middle of the night. Only then did the Federal Government intervene and give the management a slap on the wrist. This happened at least fifteen years before the recent Royal Commission and COVID disasters in Victoria last year. The abuse of our elderly in these places has been going on for a long time and could go on for a lot longer until the Federal Government steps in and exercises significantly closer supervision and inspection.
There is no way that my wife and I wish to move into one of those places.
Well said Ian, and an instructive history lesson. I was especially interested in your explanation re managed funds – “managed funds, with one exception, marched over the precipice in lock step. Why did they not sell? It was mainly to keep their unit values and predicted values high” that makes sense to me. I am only 71 and currently have funds in a managed fund but have been involved in all those boom & busts, mostly with property which for the most part has been kind to me other than the huge interest [borrower] rates we faced through the later part of the 80’s and through the 90’s. Back then investors received extraordinary interest returns on cash deposits which is far from the case today, meaning one needs a massively greater pile of cash to generate a similar income. The Government can’t complain – simply we don’t trust them anymore and it’s their own doing! It’s a rare thing indeed to get a straight believable answer from a politician these days. They can’t look you in the eye because they’re too busy focusing on the polls! And of course uncertainty and uncontrollably rising costs naturally breeds caution in any thinking person
Ian’s comments re having choice in aged care are pertinent. My wife had to prematurely enter residential aged care (as one reaching the advanced stages of younger onset dementia) which, very fortunately, is completely funded by her former superannuation, now delivered as an account based pension, including covering the substantial means tested aged care fee charged by virtue of holding the substantial asset in the account based pension itself! This allowed me to choose the high quality, and expensive, care home needed for her high level care, allowed me to retain the family home and not have to sell it or utilise its equity and be able continue to live in it myself mortgage free, and keep my own superannuation/account based pension for my own future needs. Other than the no-tax benefits of the account based pension, the only other “contribution” to my wife’s care that the Government makes is a few reductions in pharmaceuticals from possessing the Seniors Health Card.
So my message is, don’t think only about passing on an inheritance to your children: You or your partner may well need your superannuation resources if and when you need to enter aged care – and you may not be able to predict when that time comes (as they say, you are only one fall and a broken hip away from the door of aged care, unless you have dementia or some other debilitating disease and cannot be cared for at home). If you are not largely self funded in retirement through superannuation, and have to rely on the aged pension, your choices in aged care may be severely restricted and you’ll live a very basic life there.
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It’s difficult to understand the Government’s attitude on this topic when on the other hand they implore us to save and contribute to superannuation throughout our working life to become as self sufficient as we can for our retirement, to ease the national burden on the aged care pension.
After working so hard for so many years with salary sacrifice those superannuation money is my money. I have retired from last February 2021 and now am getting only a part pension because of my asset test. Unfortunately I lost my wife 8 years ago. Don’t know how long i am going to live. Especially you need more money for paying the bills like Gas, Electricity, Rates, Insurance, Car Rego, etc. If you want to live as a normal life, your part pension money is NOT enough. Then If I use my supper and after finish my super what will happen to me. After working so hard and paid so much tax why can’t I get a full pension?
Perhaps because through salary sacrifice you reduced or negated the amount of Income Tax you paid ( depending on what rules around that applied at the time)? You gain $ at that time and now forgo a bigger Age Pension now ….. swings & roundabouts situation maybe….
The gov set up this system – blame them not us. The gov sold all our communal assets (CBA etc) now people are their only source of income. Abolish income and assets test (which costs far more to administer than pension costs they save). Welfare only appears in the financial statement – the national cash flow. It does not appear in the balance sheet (the common wealth of Australia). It is cash flow not cost.
My husband would like to retire but recently had a full knee replacement and as iam not at the age to receive the age pension we had to live on just his aged pension while he was recovering because we did have some savings I could not get any centrelink payment so we are scared to spend as the time he spent of work had a impact on money we had saved . Even when he can retire I will have to go on newstart and we care for grandchildren as our daughter works full time the government have no idea what families are coping with older people are dealing with aging parents as well as grand children so we are reluctant to spend in case of a emergency.
Give us a break. We’ve worked hard all our lives, been relatively frugal, bought up children and now take care of parents.
I lost my husband at 52 (just when saving for retirement could begin in earnest). I got a good job and then salary sacrificed myself, government then adjusted amount of super we could sacrifice.
I have never received benefits and never intend to. I don’t want my children to either.
If I leave money for them in the end, I believe that is up to me.
in which democracy can a government tell you how to treat your AFTER TAX money?.
If all the articles I’ve read, I have seen various reasons why retirees don’t spend more but all articles have missed one important reason – that the retiree doesn’t need to spend any more than they are currently spending. They shouldn’t be forced to spend it or lose a large chunk to tax.
I always believe that it is important to spend and live comfortably and to use the rules that are there. With super running at 9-10% for most ‘balanced’ super funds over the past ten years, I hope that we can live off our earnings and also pass something on! As for taking advice from the LNP federal government…
Sylvia, if it wasn’t for inheritance I would be drawing a pension. Why would the government want more people in the pension? I would like to leave something for my kids so they don’t have to live on the pension. Anyway, the pension is not enough to live on unless you don’t eat well, go anywhere or give birthday presents to your lived ones. Our kids and grandkids are going to have to pay for all the borrowed money due to the pandemic. Let’s make sure they don’t suffer too badly.
This is obviously an opinion piece, with no facts or references as to who or what Government Dept voiced these ideas. It is rubbish and insults the intelligence of those who have anything to do with Retirement Essentials.
Put it back in the shock jock area where it belongs and spend your time providing valid advice to retirees regarding their financial futures.
Thanks for your comment Reynah. The Government Department that voiced these opinions was the Treasury Department. They in fact released a position paper last week in which they made the following statements.
Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income. Rather, they remain unspent and become part of the person’s bequest when they die. Multiple studies have shown that retirees die with around 90 per cent of the assets they had at
retirement. Without a change in behaviour, it is expected that bequests from superannuation will grow. By 2060, it is projected that 1 in every 3 dollars paid out of the superannuation system will be a part of a bequest. Low consumption of superannuation lowers living standards. The Review noted that ‘whether retirees draw down at minimum rates or effectively use their superannuation is critical’ to determining whether they have an adequate retirement income.
As we are seeing from some of the comments on this blog many people don’t spend for a number of reasons. We mentioned some reasons in the blog but additional reasons some readers have given include the uncertainty over future age care need and also the very pragmatic view that some don’t spend much simply because they don’t need to.
It is difficult to change when you have saved hard all your life. What do you spend it on? As a homeowner spend on practical upgrades to your home/property, but number one is your health.
I agree with Bob. One pension for all and one super contribution rate.
As self funded retirees, my wife and I seem unlikely to ever be eligible for the aged pension – we both worked and our super pays us about half our take home pay prior to retirement. Between now and death we are likely to have increasing inflation, medical bills and we will probably have to go into a retirement home (sale of our house will probably not pay for both of us to go into one so need to draw on super). Those are likely costs. What if GST goes to 15% or 20% – no government assistance for us.
Prime ministers and Treasurers (of all political persuasions) are like 2 year olds in a toy shop when they see a few billion dollars, they can’t help but fiddle and when the disaster happens they throw their hands up in the air and say it wasn’t their fault and everyone else has to bear the brunt. I bet they won’t give up their 6 figure, government guaranteed, indexed for inflation pensions to live on the aged pension.
We will manage our super (and our kids inheritances) and they can try to do better with the short term stuff – like getting the Covid vaccine supply & rollout right
I find it deeply concerning that, in this era of world environmental pressure, any government would urge increased consumption. This is such a short-sighted policy and definitely something we would not wish to bequeath our children. (Please note I am not a ‘greenie’ – just someone concerned about the future of our planet.)
Concern for the future of this planet dirs actually make tou “ a greenie”. You care about the environment around you.
The Government halved the compulsory amount that is taken out of your allocated pension each year to provide your pension as earning rates are so low and most of have reduced requirements as we cannot travel. This should stay as they have escalated the compulsory drawdown massively in the last few years in an effort to put money back in a fully taxed environment.
Thank you Everyone – for your contributions. As a soon to be retiree- you have been scary, informative and practical.
Best wishes.
The request from Retirement Essentials is “do you agree with Treasury’s view that many retirees underspend and what do you think you are likely to do”.
I’ll respect the request as framed rather than whinge as almost every other respondent has done!
Yes, I agree with Treasury’s view that many retirees underspend. My partner and I underspend, as do our friends.
I think I’ll continue to underspend as superannuation returns have been strong (more than recovered the covid market falls of 2020) and we are fortunate to own our house (the government’s widening of the pension loan scheme provides a great safety net in this regard, even if you receive $0 age pension).
Retired home owners with self-funded superannuation are very fortunate. Spare a thought for those worse-off, especially older women who find themselves abandoned in later life, trying to find rental accommodation and with little in the way of job prospects.
James, we are in the same position as you. We live comfortably but not luxuriously and helped our adult children buy their own homes. We don’t qualify for a government pension and probably never will. Nobody knows what’s around the corner but we live in a great country with a strong economy and trust that we’ll be OK until D Day.
Tax super at the normal rate! Super it’s just a tax haven for the wealthy. Ans as for Government the would do us a service by just getting out of our lives!
How blind can the bean counters be? If we die with excess money in our super funds our children mostly inherit it and in turn rely less on the age pension. Win win situation for both.
When I started work 45 years ago the Government of the time encouraged everyone to contribute to super so they DO NOT need to burden the Govt of the future with paying pensions, additionally average age of death was approx 75.
Those of us who contributed extra to super to comply with the Govt request are now being punished and tongue lashed by Govt for having too much.
Average age of death is now approx 85 so of course we need to PLAN for our super to last longer(planning is something the Govt is poor at as they only have to plan for 3 years) AND if we die before 85 of course there will be left over for inheritance.
eg plan to live to 85 (retire 67) but die at 79 – 30% of super will be left (oh no simple maths the Govt not capable of)
Kerry Packer once said “why would you give Govt any more than you have to with the poor way they handle money” , the same applies to listening to their advice
Superannuation is way too complex and, speaking from experience, there are way too many dodgy financial advisers out there ever eager to get their sticky fingers into my money. One ripped me off by $40K, another I had to fight through the Ombudsman to get $17K back. If the Govt made it simpler for us to manage these funds on our own, things would be much better. I don’t understand why there is a minimum drawdown or a limit on how much you can put into your super. It’s my money, I earned it in England by working long hours in all weathers and my 11% contribution over 20 years came out of my pocket, not my employers. So I should be allowed to do whatever I want with it, whenever I want to, once I have reached preservation age. This included using it to set up a business and create Aussie jobs but, as a migrant, I was denied access to my own money by the Australian Government, which racist policy very nearly caused me to go bankrupt and get deported through no fault of my own. Of course, as a migrant, I couldn’t borrow money from the banks either, because they too are racist. Fortunately, I had a good support network of kind Aussie friends who trusted me and, after a ten year slog, managed to get citizenship. Now that I am back on my feet again, courtesy of an inheritance from my father, I run a successful business and own two properties. My biggest fear now is to end up in an Aged Care facility run by unvaccinated staff who don’t speak English. If that’s what I have to look forward to, kill me now. Like most people, I want to live out my life with dignity, and I think it’s very important that when someone is talking to you about medical matters, there should be no misunderstandings due to accent or misinterpretation of technical terms. In the meantime, I’m very glad to have the freedom to be able to spend my money as I see fit, and I will resist any attempts by the Aussie Govt to interfere with that.
I only spend what need to most of the time, I have no idea how long I will live, I save most of my defined benefit, when I kick the bucket my wife and children will get a few bob but I’ve told them the same as my parents told me, “save for the rainy day, that is surely coming. BUGGER SPENDING FOR THE SAKE OF SPENDING.
I recently retired and then found out how complex the system is. I went to 6 financial advisors – to expensive & l also decided l couldn’t trust any of them.
I then purchased a white board wrote down all the rules, managed to get a health care card although l have paid my Taxes for 52 years l don’t receive a part or full pension.l then configured my Super- left the money in an accumulation account – to date l have managed to live on money saved in the Bank.
My Conclusion is the system requires simplifying and as you no Politicians and Centre link haven’t a track record for simplicity in any thing, so l figure a suck it and see approach is required and l will modify my strategy as the rules change.
I urge you all to read barefoot investors book I wish I had read it 30 years ago
We want our super to be an inheritance for our children to help them get a house & live comfortably like we have! If we spend our super we won’t generate enough to live on! It’s our personal choice!
Changes to super rules and conditions ought to be close to taboo. How can we plan for the next 15/20/30 years when the goal posts are constantly moving? I read with dismay recently an advisory think tank to the ATO suggested that income streams from super be taxed at 15%. Although if i read it right any move in that direction would be an election loss. It is a tempting pot of gold for a government to get its hands into as was the case in queensland a few years ago when they “borrowed” a staggering sum from the defined benefit fund to pay down debt and invest in infrastructure. HANDS OFF.
I’m a self funded retiree who worked for 50 years and like everyone paid my fair share of tax. I contributed moderately to super and paid the tax as stipulated by the Government. I did not make the rules. Now to survive I must get the best return I can on my lump sum without any Government pension. If I spend the capital that wont be possible. In my mind it appears the Government is moving to a position where it wants to control its citizens to the day they go into the ground. What and how we spend our very hard earned capital (whilst also not being a burden on the public purse ) is our business and right !