Australians underfunded for retirement

Research by HSBC has revealed that Australians have a 13-year shortfall in their retirement savings. Among the 15 countries surveyed, this gap is the fourth worst in the world.

HSBC’s Future of Retirement research surveyed 16,000 people in 15 countries, with 1000 respondents in Australia. Respondents included those of working age and in retirement.

There are many general reasons for the anticipated savings shortfall. Firstly, most of us will live longer than our parents – good news indeed – so these are extra years we need to fund. As our compulsory superannuation was only introduced in 1993, older Australians – e.g. those closer to retirement – have not had the benefit of decades of extra savings that are necessary to achieve a reasonable nest egg for retirement.

The reasons offered by pre-retirees in the HSBC report on why they were not preparing adequately for a comfortable retirement are:

  • they did not start early enough,
  • they were not earning enough,
  • they did not know how much they needed to save,
  • they were paying off a mortgage or
  • they were paying off other debts.

The report also found that more Australians than any other nationality (16 per cent compared with 10 per cent global average) believe that they will never be able to fully retire.

Graham Heunis, Head of Retail Banking and Wealth Management for HSBC in Australia, said: “When you consider wage growth in Australia has slowed to 2.6 per cent p.a. (the lowest rate of growth since 1981) it’s unsurprising Australians are struggling to afford retirement… Australians are in denial about retirement planning. Being concerned is not enough – the next generation needs to take action and start saving now.”

Perhaps the most telling point revealed by the research concerns debt, with the warning

“The burden of repaying mortgages and other debts is a relatively new barrier to retirement saving. More than two in five (46 per cent) pre-retirees are not adequately preparing for a comfortable retirement due to paying off their mortgage and/or other debts, compared with just 22 per cent of retirees.”

Read the full report – and try the survey yourself.

Opinion: Start saving now

For those already in retirement, the findings of the HSBC Future of Retirement report are unsurprising. For many older Australians, the retirement shortfall is an everyday reality.

So how do we help those in retirement lead a more comfortable life? And how do those approaching retirement learn the lessons of those who have gone ahead? These are the real questions raised by the HSBC report and in it are some answers.

First let’s start with the things we can and can’t control. Australia has a three-pillar retirement income system, with a means-tested Age Pension, a mandatory superannuation system and, hopefully for most, private savings. There are certain factors which influence our retirement income and some of those are not within our personal control. The rate of the Age Pension is not within our own control and currently the indexation rate of Age Pension increases and the age at which an Age Pension may be accessed are under threat. As advocates for the rights of older Australians, YOURLifeChoices has partnered with GetUp to prevent cuts to the pension becoming law – read more about these proposed changes here – and if you agree this is bad legislation, sign our petition.

As mentioned above, many older Australians simply haven’t had the necessary time in the compulsory superannuation system to create sufficient savings to support a long and comfortable retirement. Added to this are the very real factors of low wages, fragmented work histories, time out to raise families and the need to pay down debt. Increases in the cost of living are another factor reported by many respondents.

Sadly, all these factors are combining to create a ‘perfect storm’ with a huge retirement savings shortfall. But some of this shortfall is not inevitable – and can be avoided by those prepared to act decisively. With 38 per cent of respondents already in retirement saying that they did not start saving early enough, the message to the rest of us is clear. We do need to make a bigger effort to pay down our mortgages before leaving full-time work. We do need to address other debt – particularly the dreaded credit card bills. If we can’t pay this off within the month, then we are spending beyond our means. And more importantly, how many of us who are still working full time have a household budget – and actually live within it?

It’s too easy to start the blame game when retirement funding comes up. Our system provides a meagre pension for those with little in the way of assets. For those yet to retire, this report is a wakeup call that life on the pension is likely to be long and hard – so start saving now.

What do you think? Is Australia’s 13-year retirement funding gap a surprise to you? How can you avoid it? Or is it already too late?

Commenting on this article has now been closed.

Written by Kaye Fallick



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