‘Potential for outliving retirement savings is high’, says report
Do you want the bad news or the bad news?
A new survey of almost 9500 people that looked at every stage of retirement has cast doubt on current savings and superannuation strategies globally. For those who are or had been saving less than 10 per cent, “the potential for outliving retirement savings is high,” according to State Street Global Advisors’ Retirement Reality Report 2018.
And the other bad news?
The study found that almost half of people within five years of retirement conceded they would be retiring later – perhaps a positive outlook for Australians, given the Federal Government’s intention to push the Age Pension eligibility age to 70?
“When you ask people how they were going to make up any income shortfall in retirement … they seem to have embraced the idea that if you’re going to be living longer, then that means you also need to work until an older age,” said Catherine Reilly, global head of research for investment management company State Street Global Advisors.
To better understand the savings journey, State Street surveyed workers in Australia, the US, the UK, Ireland, Italy, Germany, Sweden and the Netherlands.
Of those who conceded they had a retirement income shortfall, 61 per cent said they were planning on working part time during retirement.
Ms Reilly said this represented a “huge change” when compared with current retirees in the countries polled with only nine per cent of current retirees working.
“People are planning on changing their behaviour in order to confront the retirement challenges they face,” she said.
All countries surveyed either had or were introducing defined contribution savings strategies as part of a worldwide shift away from defined benefits.
A majority of people said they were saving less than 10 per cent of their income, with Ms Reilly saying that “is less than you would want to see”.
At one end of the scale, in the US, super-type contributions are voluntary for both employers and employees; Australia mandates a 9.5 per cent employer contribution – rising to 12 per cent by 2025 – and in the Netherlands, the required contribution rate is on average 20 to 25 per cent of salary, with the employee contributing four to six per cent.
The report said: “In the current market environment, a participant who saves 10 per cent of her salary from age 25 to 65 could expect to receive a replacement rate of about 30 per cent of their salary at retirement. This should give individuals and providers across the globe pause to consider course corrections.”
The report found that the spending expectations of pre-retirees and retirees in the eight countries were largely consistent, with priority going to regular essentials, holidays and healthcare.
It also noted the emergence of the Bank of Mum and Dad.
“Exceeding pre-retirees' expectation is retirees' financial support of their families. This heightened focus extends to helping adult children and grandchildren as well as building an inheritance.
“In fact, building an inheritance for heirs is a factor that grew in importance for retirees, displacing self-oriented investments that pre-retirees expected to make in activities like exploring a new hobby or continuing adult education. This shift likely reflects people’s values changing with age, but may also be an indicator of the increasing financial needs of younger generations.”
Are you working part time in retirement? Do you plan to work longer or work part time after 65? Are you building an inheritance?