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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.