Contrary to popular belief, most Australians run out of super before the end of their lives, according to new research.
If you listen to the prevailing wisdom around super, you’ll probably hear that retirees are afraid to spend their nest egg, living unnecessarily frugal lives in retirement and indeed there is some research to back that claim up.
They’re mostly afraid that they’ll run out of money before they die and end up having to rely on income supports such as the Age Pension. This fear was even the driving force behind the Retirement Income Covenant, a government plan to ensure every retiree could make their money last.
Is that fear founded?
The Treasury is worried retirees are leaving enormous inheritances behind when they die, instead of this money be using for its intended purpose – to fund your retirement.
But new research released by the Super Members Council (SMC) suggests that it’s actually retirees that are right to worry, and that the government may have a different problem on its hands.
In its submission to Treasury’s consultation on superannuation in retirement, the SMC demonstrated through its own research that despite the popular narrative, around two-thirds of retirees are drawing more money from their superannuation funds than they are required to each year.
They also found around 80 per cent of men and 90 per cent of women have no super left at all when they reach life expectancy age.
Housing crisis claiming retirements too
The SMC research placed a lot of the blame on more and more people retiring with debt, particularly mortgage debt. Today, more than 40 per cent of workers retire with a mortgage, up from just 16 per cent 20 years ago.
Around 40 per cent of single retirees, and 33 per cent of couples, will use their entire superannuation balance to pay off debts.
A survey of 1000 Australians aged 50 and over conducted late last year by AMP found only one in seven thought they would be able to retire without a mortgage, and one in nine expected to have debts totalling more than $250,000 at retirement.
Ben Hiller, retirement director at AMP, told the Sydney Morning Herald retirees with debt are also more exposed to interest rate changes and represent a significant challenge for financial planners.
“For as long as we can remember, the Australian dream has been debt-free homeownership, which provides the financial foundation and security for a comfortable retirement,” he said.
“While home values and super balances are increasing, research shows that more and more Australians will be retiring with increasing levels of household debt.”
Planning and advice need to be simpler
The research found another culprit for people running out of super was a lack of planning and financial advice, both of which the SMC says are in need of a legislative overhaul.
The SMC was formed late last year by the merger of two previous superannuation advocacy groups, Industry Super Australia and the Australian Institute of Superannuation Trustees.
Its inaugural CEO Misha Schubert told the Australian Financial Review the group wants to use its oversized lobbying power to get make financial advice for retirement simple again, and that there were a “number of practical and actionable” the government could implement quickly.
This includes prioritising financial advice reform legislation that will allow funds, banks and other financial institutions to offer more guidance to retirees and those approaching retirement. Ms Schubert also suggests allowing retirees to add savings to their super accounts when they are in the pension phase.
“There’s a huge opportunity for us to continue to evolve the retirement space for the super system in our country, and a huge appetite for high-quality, low-cost or no-cost advice to help people plan with confidence what [that] looks like,” she said.
“We think there are sensible and elegant innovations that can be embraced here that don’t have a large price tag attached.”
Are you worried about running out of super? How do you think the government can improve the retirement system? Let us know in the comments section below.
Also read: Super fund proposes simplified ‘account for life’ for retirees