Retirees accused of being too conservative with their spending

The drawdown or spending phase of superannuation is ripe for greater attention.

Retirees too conservative with super

Retirees are accused of being too conservative with their spending, leading to calls for changes to superannuation drawdown rules.

According to Nick Callil, head of retirement solutions at insurance firm Willis Towers Watson, the Age Pension and related benefits need to be more closely integrated with compulsory and voluntary superannuation to deliver a better retirement income system.

“Often, there is an assumption (generally unspoken) that assets individuals have accumulated for retirement are not to be drawn down during the retirement years,” he said in his Superannuation is for Spending report.

The report suggests that superannuation funds are hindered from offering more tailored drawdown guidance due to concerns about regulatory constraints on providing advice and limited information available about retiree members.

“Living off the interest income from term deposits or the dividend income emanating from a share portfolio sounds attractive, but for most retirees (who have little in the way of income-producing assets outside superannuation) this sort of strategy is unlikely to produce an income they might regard as adequate,” Mr Callil said.

One of Mr Callil’s suggestions is for superannuation funds to provide estimates of projected retirement income during the accumulation phase (particularly as members approach retirement) to promote the primary aim of superannuation as spending in retirement.

Some superannuation funds do provide these estimates, but Mr Callil believes they should be mandatory.

He also suggests that super funds should review their default drawdown offerings to ensure they are not too conservative and do not promote inappropriately low spending by retirees. They should also improve and promote their longevity protection products to ensure retirees are sufficiently comfortable that they will not run out of money.

Do you only spend the money earned by your superannuation fund or do you draw down from the balance? How do you manage your retirement income? Do you think you are too conservative with your spending?

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    COMMENTS

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    Horace Cope
    1st Oct 2019
    10:16am
    Our super fund has always projected our future position but as it is done on past performance it doesn't really mean all that much. Our 10 year average which is the basis for the projection is unrealistic when today's rates are considered. What we find is more helpful is that we achieve more than 5% after fees each year and our Industry super fund has achieved this. Whilst this means that we should never run out of super, the buying power in the future will be a lot different.

    To answer the questions, we accept the minimum drawdown of 5% and have no need to draw more than that from our super fund. We let our super fund look after our funds and are quite happy with what they have achieved for us. Asking if someone is too conservative with their spending is akin to asking how long is a piece of string. We were never in high paying employment for most of our working lives so we have always tried to live within our means and if that translates as being conservative then so be it.
    AutumnOz
    1st Oct 2019
    11:20am
    We do not have a super fund to draw from. We do have some capital and I sincerely hope it outlasts us, I am doubtful it will as with the current low interest rates we have to dip into capital to pay bills.
    rtrish
    1st Oct 2019
    1:58pm
    AutumnOz (nice name!), I am in the same position. No super, small amount of savings, have Age pension but worried about how long my money will last. I have chronic health issues, and the prospect of unexpected health costs is worrying. The low interest rates is disastrous. How dare they tell us we should be spending more!
    MacI
    1st Oct 2019
    11:48am
    I have no problem with retirees with substantial Super balances being conservative with investment choices and the rate at which they draw down on their Super as long as they don't continue to moan about how they are living in poverty when they don't need to. Too many think it is unfair to expect them to spend some of their capital to achieve a decent retirement income. The tax system before retirement and after retirement is very generous - low tax rates on Super contributions and investment returns during the accumulation phase and no tax in retirement (spending phase). Many retirees who have this mindset (generally the ones who moan) think that they are entitled to even more generosity through greater Age Pension entitlements (a greater tax burden on the ever reducing number of tax payers). The irony is that if they would only spend some of their capital they would be entitled over time for a larger pension entitlement.
    Sundays
    1st Oct 2019
    11:49am
    Having worked hard all our lives to accumulate what we have, yes we are conservative in our spending, but not mean. We have a budget and stick to it. Very happy with the positive return from our Industry fund but I would only make a capital drawdown for large essential purchases or unforeseen events because you never know what the future will bring. I do however, know retirees who live in enforced poverty because they want to leave everything to their kids. Makes no sense to me, but it is their money and they can do what they want.
    older&wiser
    1st Oct 2019
    2:47pm
    Sundays, I agree with you about the utter stupidity of people not spending their own money so as to leave it to kids. I have a close friend in a similar situation, owns own home, had good super, but does nothing, goes nowhere, simply saying she wants to put it aside for her only son. But he is quite well off, aged 35, and could survive very well without any help from mum. Really annoys me.
    Farside
    2nd Oct 2019
    7:12pm
    as you say Sundays, it's up to retirees with assets behind them whether to spend or to conserve their wealth to pass onto the kids. Frankly I could not care less about their choices but I do wish they would stop whining about being hard done by and forced to live an impoverished lifestyle due to low investment returns. Never heard peep when interest rates were higher.
    Anonymous
    6th Oct 2019
    8:45am
    A few of us have been hit rather hard 10 years ago during the GFC and have not forgotten the experience and so we are a bit more conservative than we otherwise would be.
    Hoohoo
    6th Oct 2019
    12:27pm
    That is very relevant, Cowboy Jim. We don't know what the future holds & many people have a "once bitten, twice shy" policy because of what happened to their retirement plans after the GFC.

    I know people who swore they'd never go to Centrelink asking for help in their retirement, but after the GFC everything changed for them.

    I'm sick & tired of our Federal Govt telling everyone to spend their own money, but meanwhile the Govt is DOING NOTHING to stimulate the economy. All so they can brag about a Surplus, only possible because they haven't spent the money set aside for services like the NDIS ($3.4 billion). Now we have disabled children being carted about in wheelbarrows because they've outgrown their old wheelchair & the Govt is stalling the flow of processing the claim for essential equipment like wheelchairs. Or, they get a new frame for the wheelchair but it doesn't have wheels. It's so cruel.

    The Govt is a f...ing disgrace if they think this will be a vote-winner in the next election, but there are always plenty of idiots who will fall for it.
    Priscilla
    1st Oct 2019
    11:50am
    You need to be conservative with your spending as the market fluctuates and no one knows when a market crash will/can occur and there is no guarantee how much money will be left. For retirees it is not possible to replace monies lost this way. For younger people who are still working it not such a problem.
    Rae
    2nd Oct 2019
    9:45am
    I agree and everything is going up. I just received an email from the toll company to say the government will charge 0.45% more on payments by credit card . They want direct debit.
    No way will I allow that. Looks like I'll be taking way longer going around the suburbs to avoid tolls. It'll cost more in fuel but so be it.
    Mad as Hell
    1st Oct 2019
    11:52am
    So an insurance firm is setting government policies.
    Greg
    1st Oct 2019
    12:21pm
    Where the hell do you get that idea from reading this article, it's a report by the company for all to read, not for the government to set polices.
    Mad as Hell
    2nd Oct 2019
    7:05am
    “One of Mr Callil’s suggestions is for superannuation funds to provide estimates of projected retirement income during the accumulation phase (particularly as members approach retirement) to promote the primary aim of superannuation as spending in retirement.

    Some superannuation funds do provide these estimates, but Mr Callil believes they should be mandatory.”

    Where it says “mandatory” who is going to implement that ?
    Mr Callil or the I’ve got no policy ideas LNP?
    Does “mandatory” mean self regulation? The banks know how that works.
    What next a Cashless Pension Card to ensure pensioners spend all their “welfare” ?
    Who is going to implement that Mr Callil or the I’ve got no policy ideas LNP?

    And yes I was provided a spending estimate by my superannuation fund which drew down my assets to zero over my projected life needs. But then the LNP a Greens put a hole in that projection by stealing my “welfare” with the 2017 changes to the Pensioner Assets Test

    One doesn’t plan their retirement income the day before they retire and I understand that polices need to be fine tuned but decisions need to made, not based on lies, like the budget emergency, lifters and leaners. Negative gearing for housing investors has created unaffordable housing. The LNP have no idea.

    What’s the LNPs policy on climate change? No idea. Just kick that can down the road too.
    Rae
    2nd Oct 2019
    9:47am
    Yes the neighbour just had a water pipe break and it's going to cost a few thousand to fix. How is the welfare card going to work on saving for home repairs and maintenance.

    Everything costs more and they wonder why we don't spend everything each pay like foolish people do.
    stevo
    1st Oct 2019
    12:00pm
    Retirees being too conservative with their spending. This maybe so with people who have Superannuation but those of us on the 'Old Age Pension' WE HAVE NO MORE MONEY TO SPEND once we pay for everyday needs and essentials and even then the PENSION IS NOT ENOUGH AND WE GO WITHOUT.
    Farside
    2nd Oct 2019
    7:16pm
    The article clearly does not refer to the skint retirees struggling to make do on the aged pension, and even less so to the retiree trying to get by on Newstart.
    floss
    1st Oct 2019
    12:28pm
    Perhaps most retirees do not trust the L.N.P not to change the rules yet again.I would rather trust a used car salesmen then our present P.M.
    KSS
    1st Oct 2019
    1:15pm
    Get over yourself floss. Nothing to do with the colour of the Government. Superannuants were just as conservative in their draw downs under the ALP for what I suspect is 2 main reasons:

    1. leaving as much as possible for the kids and grandkids - this makes no sense to me at all.

    2. Not knowing how long they will live and wanting to ensure the money doesn't run out before they do.

    Neither of these 'reasons' are influenced by the colour of the incumbant Government.
    Rae
    2nd Oct 2019
    9:53am
    Maybe not knowing how much future needs will cost. saving for home care because the government does not support savers at all. Saving for hefty maintenance bills as homes age,

    Saving for travel, increased food and fuel and electricity and water costs.

    Lots of things can cost quite a bit as the years go by and leaving it for kids isn't really a thing.

    Of course we could go spend it all propping up retail and hospitality and then whinge and wail when the water heater blows up or the air conditioner need replacing or the verandah needs a rebuild that will cost about $20 000.

    Honestly I doubt these young ones thinking it's being saved for the kids have any life experiences at all. They must lurch from crisis to crisis with no savings as a back up but able to borrow.
    Farside
    2nd Oct 2019
    7:22pm
    it's one thing to budget and have some savings put aside for the unexpected and quite another to sit on a nest egg to leave to the next generations. I talk to many retirees with plenty of assets earning low investment returns and complaining about how tough life it is living on less than the aged pension. It never crosses their mind to spend some of the savings to improve their lifestyle.
    Hoohoo
    6th Oct 2019
    12:41pm
    KSS, when Labor came into Govt in 2007, they were wise to flush money into the economy when the GFC hit, because it averted a Recession.

    But now, with the world's economies very unstable & record-low interest rates, negative wage growth for many & low low inflation, we have this Liberal Govt squeezing everyone but themselves, so they can implement austerity measures & then brag about having a Surplus.

    The Libs are doing nothing to stimulate the economy except to make very rich people even richer, at the cost of everyone else. They call it "trickle-down economics" & they're proud of it.

    The Liberal Govt can't now blame people for being conservative with their savings because the Libs have helped to create the current fear for the future scenario. I think the Libs know this but they can't back down because they'll lose too much face.
    Curious
    1st Oct 2019
    12:29pm
    I found the questions are based on the assumption that everyone is equal in terms of financial needs, stage of health, degrees of age-care, family-support, and mental health. Unfortunately, retirees are not all equal. Superannuation should be designed for each individual needs. A broad brush in reviewing superannuation, individual savings and earnings, and franking credits will not give a good picture of what is the comfortable income source for retirees. It is a witch hunt!
    V1K1
    1st Oct 2019
    12:41pm
    It's my business how I spend the money I've accumulated over many years of hard work. Investment market returns are not guaranteed and I don't know how long I will need to support myself. In the meantime the rules keep changing as evidenced by this proposal. Am I going to be told next where I can spend my money? Then be told I can't spend it overseas.
    I drawdown a little extra each month to cover my expenses. I budget and spend my money as I did during my working life.
    Farside
    2nd Oct 2019
    7:24pm
    just because you are encouraged to spend more does not mean you have to. You seem to be confident of your finances and able to budget accordingly.
    floss
    1st Oct 2019
    1:21pm
    Sorry KSS.WHEN IT COMES TO SUPER I DO NOT TRUST SLIMEY MORRISON.
    thommo
    1st Oct 2019
    2:26pm
    Me either floss..he's a charlatan and a snake oil salesman....
    Farside
    2nd Oct 2019
    7:30pm
    "titanium man" ... lightweight, brittle when cold but malleable when heated, inert and white ... yep sounds like him :D
    Golden Oldie
    1st Oct 2019
    2:32pm
    Get real. It was not so long ago that retirees were regarded as cheats for spending their money on overseas trips just to be able to get the Aged Pension.
    Now we get complaints to not draw enough to spend lavishly. Retirees fo not work, do not get a wage, face changes to superannuation almost yearly, and do not know how long they will live, or what the cost will be to enter a nursing home if they need it. Draw down more in capital than what the superannuation account earns means that the monthly pension payment will decrease, and may eventually get to such a level that the government Aged Pension will be needed at 80 years or older. Then you can look forward to being labelled as a welfare cheat, a sponger, and poddibly, what is currently mooted in the press, of going onto the Indue card, where most of your income cannot be used as cash to get cheaper items from businesses that do not honor the card, or even finding that you cannot pay for your groceries because the internet is down. We all know how efficient the current NBN is. Also, going by the current state of Centrelink, you may need to wait for 8 months or longer to find out if your claim is successful, after you have run out of money.
    Rae
    2nd Oct 2019
    9:59am
    Yes I need new gutters very soon. Also all the old power points and light switches replaces as well as new outdoor lights. Nobody else is going to pay for it all.

    Exactly why I don't waste money on coffees out, clubbing, lotto tickets or buying stuff I don't need.

    My kids won't need the money but I suspect my home and I will need a lot of care over the next decade or two.

    And business can look after itself. The BCA and other groups encouraged the cutting of income for retirees and low income earners. Face the consequences of what you've done.
    Farside
    2nd Oct 2019
    7:39pm
    and not to forget business has routinely resisted compulsory super contributions, increases to minimum wages and paying company taxes
    PJ
    1st Oct 2019
    3:10pm
    I smell a rat here!!!

    The Grattan Institute Fat Cats say everyone has more than enough to live comfortably in Retirement (7.30 Report Interview last night) - What an absolute load of Rubbish. Now someone else is saying we just need to spend more and not be so conservative.

    What this is leading to is a justification for not increasing the compulsory superannuation rate to 12%, we already have more than enough!! I fear more and more people nearing a retirement age of 67 years (or higher) will be forced to keep working in 'serfdom' or ending up in a 'newstart prison' until they are eligible for the age pension. Good luck applying to Centrelink as well - waits of 8 or 9 months are not uncommon I've heard.

    Royal Commission on Centrelink anyone??? I would support that!!!!
    Hoohoo
    6th Oct 2019
    12:56pm
    So would I, PJ.
    Only problem is that they'd burn the Centrelink Managers while the Govt could slink out the back door & blame Robodebt on the private companies who implement the debt-collecting. They are a slimy bunch who know how to shift blame & dodge responsibility.

    These days, many government departments outsource their workers so
    1) it looks like they have a small public service &
    2) the department isn't to blame for their poor service or negative outcomes.

    1st Oct 2019
    3:38pm
    For people with superannuation balances that still enable them to qualify for a part pension, are in the strange position that the more they spend (and ultimately reduce their super balance), the more age pension they become eligible for. Is that not a bizarre situation? Not sure what the solution is, but if you tried to explain this to a visitor from Mars, you would be hard pressed getting them to believe you!
    MacI
    1st Oct 2019
    4:26pm
    I see it as completely logical to have a sliding scale - maybe I'm from Mars. What's the alternatives: everyone to get the full Age Pension or for no one with assets over a certain threshold to get the Age Pension? The former is both unfair (why should the people very capable of funding their retirement get the Age Pension) and unaffordable. The latter would encourage some people to spend up big to get to the threshold - even more so than they do now.

    In my view the rate at which the sliding scale tapers may be arguable but not the idea that the relative ability a person has to fund their retirement should determine the amount of assistance they require.
    Rae
    2nd Oct 2019
    10:05am
    Giving a universal pension and taxing other income encourages productive investment for income unlike our system which encourages hoarding of wealth in the family home.

    A lot of people quite capable of funding their own retirement chose instead to spend everything or to upgrade the home every ten years or so instead of investing for income.

    Asset and income tests just distorts investment , rewards spenders and punishes productive savers. It's not equitable either.

    You'd have to look at lifetime incomes and why people didn't save. The whole thing is unfair.
    recyled
    1st Oct 2019
    7:22pm
    My concern is the changing of the goal posts by government which affect those who have retired based on current rules only to find that changes to pension rules move them in a backward direction and leave them more vulnerable than expected. If this continues then retirees become more anxious about government decisions relating to the pension framework.

    In my case, I was forced into early retirement due to Chronic Fatigue Syndrome. I was not aware at that stage that I had an insurance component in my superannuation that had a payout if I was unable to continue my duties due to ill health. I was also unaware that that I was eligible for an Invalid Pension. Taking all this in gave me hope that all would be financially well and that I did not have to take on alternative and health sapping employment.

    Then came the changes to the capital imposition to pension payments based on redefined asset levels. This impacted anyone who had been forced into retirement or elected to avail of early retirement based on the then current rules only to find that the goal posts had indeed been changed.

    Given the track record of this government, my basic instinct is to err on the side of caution and expend as little as possible to preserve what superannuation I have. A government guarantee regarding the maintenance of the superannuation framework to, at a minimum, of the current laws as at retirement. Any subsequent financial enhancement of retirement rules should be incorporated into your current personal pension payment circumstances but should not be lessened by these changes.
    recyled
    1st Oct 2019
    7:22pm
    My concern is the changing of the goal posts by government which affect those who have retired based on current rules only to find that changes to pension rules move them in a backward direction and leave them more vulnerable than expected. If this continues then retirees become more anxious about government decisions relating to the pension framework.

    In my case, I was forced into early retirement due to Chronic Fatigue Syndrome. I was not aware at that stage that I had an insurance component in my superannuation that had a payout if I was unable to continue my duties due to ill health. I was also unaware that that I was eligible for an Invalid Pension. Taking all this in gave me hope that all would be financially well and that I did not have to take on alternative and health sapping employment.

    Then came the changes to the capital imposition to pension payments based on redefined asset levels. This impacted anyone who had been forced into retirement or elected to avail of early retirement based on the then current rules only to find that the goal posts had indeed been changed.

    Given the track record of this government, my basic instinct is to err on the side of caution and expend as little as possible to preserve what superannuation I have. A government guarantee regarding the maintenance of the superannuation framework to, at a minimum, of the current laws as at retirement. Any subsequent financial enhancement of retirement rules should be incorporated into your current personal pension payment circumstances but should not be lessened by these changes.
    Jacky
    1st Oct 2019
    8:46pm
    We were never highly paid but are now retired and have super. I am wondering if it is a good idea to start a pension phase. Can't decide if it is worth it, but at least you don't pay the 15% tax on earnings. Or is it better to draw down as you need it or maybe a lump sum every so often? Your thoughts or experience with this would be appreciated.
    Jacky
    1st Oct 2019
    8:46pm
    We were never highly paid but are now retired and have super. I am wondering if it is a good idea to start a pension phase. Can't decide if it is worth it, but at least you don't pay the 15% tax on earnings. Or is it better to draw down as you need it or maybe a lump sum every so often? Your thoughts or experience with this would be appreciated.
    MacI
    2nd Oct 2019
    5:03am
    Hi Jacky, As far as I can see the only down side in transitioning your Super to pension phase is that you are required to draw a minimum percentage of your Super balance each year. This percentage increases as you get older.

    The increase in returns between Super in accumulation phase and Super in pension phase is generally about 1% when invested in a diversified option. For example, I have chosen a moderately conservative option with my Super fund that has a 50/50 split between growth investments such as shares and property and defensive investments such as cash and bonds. The average difference in returns in accumulation phase and pension phase is about 1.1% per annum.

    There are circumstances where it may be advantageous to leave your Super in accumulation phase. For example, if one partner in a couple has reached Age Pension age and the other has not then it may be best for the younger partner to keep their Super in accumulation phase. This is because the younger partner's Super would not be counted as an asset when assessing the Age Pension entitlement for the older partner.

    Hope this helps.
    Sundays
    2nd Oct 2019
    7:36am
    Good tips Macl. Also Jacky, pension phase does not mean fortnightly payments. Payments are flexible and can be paid once a year, or once a quarter for example. Maybe one of you could be in pension mode to give you more income and the other remain in accumulation mode, so you have some rainy day money. It depends on your circumstances. I have my super in a balanced option and the rate of return has been more than the drawdown.
    Jacky
    3rd Oct 2019
    2:07pm
    Thanks, Macl and Sundays for your comments. You have helped me decide on what to do Macl.
    Tricky
    1st Oct 2019
    9:22pm
    WTF Self serving interest groups doing the governments work, bots and hackers.
    Tricky
    1st Oct 2019
    9:25pm
    Government can certainly help by immediately reviewing Deeming Rates for Fixed Term Cash Deposits! These rates impact on over 60,000 pensioners and part pensioners.

    Interest rates were reduced today however government will not reduce Deeming rates how hypocritical!


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