According to the ME Household Financial Comfort Report, baby boomers are claiming lower levels of financial comfort in retirement.
The biannual report tracks the financial psychology of 1500 households as a benchmark for the perceptions of financial comfort among Australian households.
The report found that the overall ‘anticipated standard of living in retirement’ has fallen by four per cent in the last six months.
While there was a substantial decrease in perceived comfort in retirement across all generations, baby boomers feel they have been hardest hit, reporting a seven per cent drop in their anticipated standard of living – meaning boomers’ comfort levels have fallen the most of any generation to the lowest levels in recent years.
However, self-funded retirees are still reporting the highest level of financial satisfaction, even though their perceived standard of living in retirement also dropped by six per cent.
But it seems that Aussies are taking action to improve their financial prospects in retirement. In the past six months, more people have made additional contributions to super, with the number of Australians claiming they ‘sometimes’ make additional contributions rising from 17 per cent in December 2015 to 20 per cent in 2016. Households that ‘often’ make extra contributions rose from nine per cent to 11 per cent and those ‘always’ making additional payments increased from seven per cent to eight per cent. The number of people ‘never’ making additional super contributions has dropped from 66 per cent in 2015 to 62 per cent currently.
There was also a two per cent increase in Australians expecting to rely on the Age Pension to fund their retirement and a three per cent decrease in those who expect to partially fund their own retirement in addition to a Government pension.
One of the more disturbing results was that 16 per cent of Australians still don’t know how they will fund their retirement and 25 per cent of Aussies either don’t have a superannuation fund or don’t know which type of fund they have.
Another concern is that 10 per cent of Australian households estimate that they will not be able to afford essential items and services in retirement and 29 per cent saying they may be able to afford the essentials but nothing else. These findings are also backed up by the HILDA report released last month.
With the RBA expected to cut the cash rate to 1.5 per cent today, the prospect of a comfortable retirement looks precarious for those who rely on interest-bearing financial products for income.
The Government’s proposed changes to super may also be affecting retirees’ perceptions of future financial comfort.
Read more at www.mebank.com.au
With stock market uncertainty, low interest rates and confusion over the Government’s proposed changes to super, it’s little wonder Australians are feeling less secure in retirement.
Australian retirees who rely on interest returns for their income have been hit hard by the RBA’s rate cuts. With the cash rate at a record low and another cut expected today, the prospect of relying on the interest from investments and super seems a little bleak.
Those retirees who also claim an Age Pension may have received a double hit with Centrelink deeming rates often above the rate of actual return.
Add to that the Government’s ‘tinkering’ with proposed super policies, including the $1.6 million tax-free cap and lifetime ‘retrospective’ cap of $500,000 on non-concessional super savings, and you have all the ingredients for a worrisome retirement.
A recent Actuaries Institute report also found that Australian retirees are at high risk of depleting their super before they die.
Apart from what retirees already have in savings and super, there seems no clear investment prospects for retirement security.
This lack of confidence in retirement security is a glaring beacon that the Government needs to notice now. The population is ageing and these issues won’t go away. So Mr Turnbull and co would be wise to make fair superannuation changes a priority, as well as look to increase the Age Pension to a level that ensures that Australian retirees will at least live above the poverty line.
The stock market is not going to settle any time soon, so sound fiscal and social policy is required to help alleviate the financial fears of current and future Australian retirees.
Are you financially comfortable? Do you worry about your future financial security? What measures do you recommend the Government take in order to help this situation?