Comment: Financial stress in retirement is very real, writes Kaye Fallick.
More than enough? You’re kidding me.
Don’t you love it when the big end of town starts pontificating on how much (or in this case, how little) you need in retirement? For years we’ve suffered the ridiculous assumption by the Association of Superannuation Funds of Australia (ASFA) that unless you have between $1 million and $1.6 million in super you may as well throw yourself off the cliff now. But the debate just got worse, with the latest Grattan Institute report – erroneously and provocatively titled Money in retirement: More than enough.
The main assertions in this report, as covered in our news item, “Retirees living the dream”, are that most retirees are more than financially comfortable, to the point where they save money. So, there is no need to raise the Superannuation Guarantee Contribution (SGC) from 9.5 per cent to 12 per cent as currently legislated.
Where to start with the assumptions in this report?
The first point is that reports such as this do a lot of damage. By quoting averages, rather than median statistics, a false view of retirement heaven is portrayed. And this leads to lazy, generalist headlines in the media, such as today’s Herald Sun headline, “Easy living for retired”.
It is high time the so-called economic experts spoke to some real retirees, as YourLifeChoices does on a frequent basis. With more that 5000 responses to our frequent surveys, we know that financial stress in retirement is very real, with 81 per cent of our members not sure if their money will last as long as they will.
According to the Australian Institute of Superannuation Trustees (AIST), the median super balance for those about to retire is $95,000. Less than five out of every 1000 (i.e. less than 0.5 per cent), excluding those with self-managed super funds (SMSFs), will have $1 million or more.
For this reason, YourLifeChoices publishes the real cost of living in retirement – the Retirement Affordability Index – on a quarterly basis, categorised by the six retirement tribes. Those who are self-funded (Affluents) are spending about $75,000 if they are couples or $43,000 if singles. The other 70 per cent are comprised of the Constrained (homeowners on an Age Pension) or Cash-Strapped (renters on an Age Pension). It is this 70 per cent who report to us that living on $43,000 (Constrained Couple), $24,000 (Constrained Single), $36,000 (Cash-Strapped Couple) or $23,000 (Cash-Strapped Single) is difficult, with health and utility costs being a major concern.
The real problem with the Grattan Institute report is not only its lack of awareness of the real costs of living in retirement, but it also doesn’t project what is coming. It notes the financial stress on those who rent (currently about 16 per cent of retirees), but seems to pay little attention to the growing number of Australians entering retirement with unsustainably high mortgages – and little hope of covering the repayments on reduced retirement income.
And while the report notes that home ownership in retirement will decrease to 57 per cent by 2056, it does not do the basic sums to conclude that if retiree renters are financially stressed, when the number of renters swells from 16 per cent today to 43 per cent by 2056, then the level of serious financial suffering will affect almost half the population. Removing increases to the Super Guarantee would be the worst response to this coming crisis – not smart policy at all.
The report also states that increased health and aged care costs are “largely borne by the taxpayer”. This is fundamentally untrue. With the introduction of Consumer Directed Care legislation in recent years, aged-care costs are now well and truly being shifted to the individual.
Current Federal Government committees are working on ways to make individuals understand this and plan for their own aged-care costs. With many age-care facility deposits between $400,000 and $700,000, older Australians will need to save hard or own a home (decreasing likelihood, see above) to even get near such costs.
Further, maintaining health insurance remains one of the key concerns for retirees, with many going without basics in order to hang on to this increasingly expensive need.
The recommendation by the Grattan Institute that rental assistance be increased by 40 per cent is noble – given the most recent increase, on September 20, was $1 per fortnight – yes, 50 cents a week. Good luck with that one!
The report’s assumptions are incorrect, it overlooks the real costs of living in retirement and it recommends removing one of the few ways of increasing retirement income (the SGC increase), which will help future, less well-off Australians have a passingly bearable retirement.
However, the report does serve one very good purpose. It has initiated debate on a topic that badly needs ventilating. And it waves the flag that we need to review how people save for retirement and what help they need.
Nothing short of a root and branch review of our retirement income system will get the settings right. YourLifeChoices has been calling for such a review for years – and will continue to do so.