Hitting the super sweet spot: Don’t just ‘get by’

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?