There has been a veritable deluge of research, insights and survey findings about retirement funding in recent times. With nearly 700 Australians retiring on a daily basis, this is unsurprising. Retirement does indeed seem to be ‘the new black’.
But the more insights and information we receive, the more we can see conflicting conclusions on what is happening in retirement and how people create retirement income streams. A recent survey conducted for Super Consumers Australia (SCA) is a case in point. We are used to hearing about the widespread ‘Fear of Running Out’ (FORO) sentiment held by Australian retirees. But the SCA survey suggests something different.
Commissioned in August 2023 by Susan Bell Research, the survey explored how those Australians aged 65 or older moved from the accumulation phase of super to the drawdown phase and what influenced their financial decisions. This is a topic we covered in end January this year, when we wrote about the minimum drawdown rates for super once retirees move to the decumulation phase.
The first finding that surprised us in this SCA survey was that just over 80% of the respondents either feel ‘financially comfortable’ (44%) or are ‘getting by’ (37%) on their current income. This does rather challenge the concept of ‘FORO’.
Findings also suggest that about 61% of those who were now using an Account-Based Pension were drawing down only the minimum amount required by legislation. The survey states that this is because most of the respondents are content that the legislated minimum will meet their needs, because:
- They don’t need to spend any more money (56%)
- They are following advice that they have been given (37%)
- They have other sources of income (30%)
- They are concerned about future health care or aged care costs (14%)
To balance the picture, of the 1100 respondents, only 33% were in this ‘drawdown’ phase, so the sample size is small. These respondents were also described as having higher balances, with 38% holding more than $500,000 in super, which is 2.5 times the median male account size at retirement.
Thriving? Or just getting by?
Why did we find this survey so interesting? Partly because it is further corroboration of the strong grip that the minimum withdrawal rates have on retiree spending habits. In 2020 the Retirement Income Review reported that 90% of retirees pass away with their super savings intact. If we follow the conclusions of this survey, we can say that the 37% of those who have left all of their super savings as an inheritance for someone else did so through ‘just getting by’ in retirement.
And this is why taking more active management of your super is smart. The SCA survey also found that more than half of the respondents did not have ‘a good understanding of how super is taxed in accumulation and retirement’. Yet such an understanding is fundamental to ensuring that you will maximise every dollar you have saved.
We have previously reported on how knowing how super works made the difference between heading to Italy or not for our member, Don. You can read Don’s full story here, With Nicole’s assistance, Don was able to use the Retirement Essentials Safe Spending calculator to see that spending $15,000 on an Italian holiday would make a negligible difference to his ultimate income in retirement.
Don’s joy at confirming he could afford a much needed break after becoming a widower was palpable. That’s one of the reasons that the Retirement Essentials advisers enjoy their work. They get to explain the rules, reassure people that they are on the right track financially and help them see ways they can maximise their income so that they are not just ‘getting by’.
A deeper understanding of the way super works when you move from the saving phase to the retirement phase is really useful, particularly when it comes to tax implications, which the SCA survey shows is not well understood.
If you would like to check whether you are managing your super savings in a way that will boost your income across your retirement journey, why not make an appointment to work with one of our advisers so that you understand your super much better than many other retirees do?
You can read the full SCA survey overview here.
Why not have your say?
What is your view on withdrawing just the minimum from your super?
Do you think this is the smartest course?
Or could you be living too frugally, because you just don’t know how long your money might last?
As I have mentioned before, legislating against frugality in retirement seems an infringement of personal freedom. The 4% minimum annual drawdown rule seems arbitrary and has poor research backing. Let people manage their retirement their way without excess paternalism. Some people prefer frugality as a psychological help (save for rainy day).
And what is frugality anyway? Mostly it is a state of mind, not a disease needing to be fought against. One person’s frugality may yet be another person’s profligacy. Its meaning is not exact.
The day frugality is stigmatised is the day when we have lost good economic management of our lives.
Hi Bart, thanks for joining the conversation – you are right to point out the highly individual nature of different styles of retirement – and how very subjective the notion of frugality actually is! warmest Kaye
I disagree with Bart on ‘legislating against frugality in retirement seems an infringement of personal freedom” On a balance of 500,000 the 4% minimum drawdown is only 20,000 or $385 pw, which if that is your only income is certainly not profligacy.
I have kept records of all expenses that leave our house since 2017 so that in retirement we know exactly how we are travelling, we’ve found the minimum 5% drawdown more than covers our yearly outgoings plus a bit more left over, leaving the age pension more than enough to live on , We are probably lucky to own everything we have, unlike some others.
If I have 700,000 am I able just to withdraw 40% of the interest generated?
700,000
8% return
56,000 interest
28,000 pension.
from 60 to 65 minimum withdrawal is 4%. then from 65 to 74 its 5% and then goes to 6% etc.
Hi Robert,
I would love to know where you’re getting 8% return.
Do you feel like sharing that information?
Sheila
We have been living on our savings for 16years without an aged pension (just over the limit).
We also have a self managed super fund. In addition I receive about $900 every 3 months from Britain having emigrated in 1969 and having worked since 16 mainly for Social Security. My husband is a 4th generation Australian, also retired after working until almost 60. He supported me to obtain 3 University qualifications but worked full time until 50 and then part time in verious office work. We also have concession cards. We are told that we can withdraw upto $50,000 per annum and I resent being given this information as all of our savings are our own through work and not being given a pension by the government.