Retirees spending less than the Age Pension: report

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Australian retirees are spending less than the Age Pension each year, even though they can afford to spend more, according to an analysis of more than 300,000 retirees by an Australian financial firm.

The research found that more than half of those surveyed spend less than the equivalent Age Pension income.

Even those who are receiving a part-Age Pension or who are entirely self-funded are also being quite frugal with their funds.

Jeff Gebler, senior consultant at actuaries firm Milliman, says it’s not just the fear of running out of money before they die that drives such frugality, it’s more a case of covering immediate costs or the possibility of other unexpected expenses in the short term.

“Covering unexpected expenses like future medical bills and residential aged care also worries them, and they are reluctant to spend their superannuation too quickly. The result is that many retirees are holding money back for future years when they will never spend it,” said Mr Gebler.

Even many retirees who treat the Age Pension as a safety net probably won’t spend it all, preferring to save it instead.

“Rationally, they should have no need to self-insure by keeping part of their Age Pension payment. If your only source of income is the Age Pension, it’s a guaranteed, inflation-linked income stream. They are protected from inflation and investment risk,” said Mr Gebler.

The data is raising “as many questions as answers” about the motivations behind retiree spending, prompting further queries about the efficacy of proposed comprehensive income products for retirement (CIPRs), plans to boost compulsory super contributions to provide a target of 70 per cent of income replacement in retirement, and the Government’s downsizing scheme.

Mr Gebler says that a deeper understanding of the motivations driving retiree behaviour is required before creating further policy.

“We’re only really scratching the surface in understanding what motivates people. Everyone is going to have different spending patterns, depending on whether they own their house or rent, their health, their needs,” says Mr Gebler.

“Retirees overestimate some expenses and underestimate others, and the likelihood of those expenses, because they have different perceptions of their needs and the risks they face; we see this spending data that surprises us.”

Nick Callil, head of retirement income solutions at Willis Towers Watson Australia, has his own ideas about what he calls the “cohort effect”.

“If we’re saying that spending declines as people get older because, say, people of 80 aren’t doing around-the-world trips, is that a cohort effect? Do today’s 80-year-olds have less money and so they’re going to spend naturally less anyhow because they’ve got naturally less to live on?” said Mr Callil.

“I think there’s an argument for the system to be based on expectations of a step-down spending pattern, in real terms, as people get older.”

YourLifeChoices’ own research conducted for the Retirement Affordability Index, also presents convincing arguments for how retirement spending may change with age.

While the findings of the Milliman research may be surprising to some, it may also provide an insight as to how retirees will utilise the Government’s new downsizing scheme which came into effect on 1 July 2018.

Some research suggests that about 74 per cent of retirees own their homes outright and, while they could sell the home and have more money for retirement, many are unlikely to do so due to a strong attachment to the family home, or to ensure that their children have some form of inheritance that isn’t necessarily ‘money’.

“Surveys of retirees suggest there isn’t really a strong preference for leaving money to their children, but then you see a revealed preference that suggests otherwise. It’s very common for the house to be left to the kids – people say one thing and they do something else,” said Mr Gebler.

He thinks the Government and finance sector may be “only just starting to understand that people’s reasons for not downsizing might not be financial.”

“People are driven by emotional or other decisions,” he said

Do you agree with these findings? Do you spend less than the Age Pension? Or do you regularly run out of money, with no recourse?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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110 Comments

Total Comments: 110
  1. 0
    0

    Spending less because no-one knows what damn changes the Govt will come up with that will make it harder for retirees on the pension to manage! They are not stashing it away to leave to kids, but stashing it away for important things like medical, transport, electricity bills, cuts the govt will invariably make.

    • 0
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      Yes, people are worried. Retirees have been under constant attack from the current lot with more to come should they be put back into office.

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      You wouldn’t want Shorten and his mob in as in about two years time all pensioners will be on cards only as some are now on restricted spending and at the end of his 3 years you will be on basic food stamps. So be very careful of who you vote for pensioners at this stage are getting a good screw.

    • 0
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      Typical government hate comment.
      Shorten has NEVER come after retirees with a vengeance. The Turnbull government has. End of story.

    • 0
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      Be frightened Mick be very frightened your pension might go if your mate Shorten gets in.

    • 0
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      You are spot on, sunnyOz, this stupid researcher doesn’t understand these basic facts! In fact he even overlooks his own findings.

      He stupidly says “..they should have no need to self-insure by keeping part of their Age Pension payment”, after having noted:

      “It’s more a case of covering immediate costs or the possibility of other unexpected expenses in the short term.
      Covering unexpected expenses like future medical bills and residential aged care also worries them, and they are reluctant to spend their superannuation too quickly.”.

      Clearly, it is yet another agency trying to justify lower pensions (direction of the current Liberal Govt as they already attacked pensioners in Jan 2017), as well as to promote their CIPR products which are meant to boost their incomes through low-return products at the expense of retirees.
      YLC needs to start calling out these self-interested so-called researchers who also misinterpret their own findings to suit themselves.

    • 0
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      You could read between the lines that someone in a think tank has voyeuristic fascination with the age pension system.
      The data is raising “as many questions as answers” about the motivations behind retiree spending, prompting further queries about the efficacy of proposed comprehensive income products for retirement (CIPRs)…
      Mr Gebler says that a deeper understanding of the motivations driving retiree behaviour is required before creating further policy….
      “I think there’s an argument for the system to be based on expectations of a step-down spending pattern, in real terms, as people get older.”
      –Ah, yes, of course…a further new policy!!!…to create a step-down pension payment system based on age and spending expectations?
      Here we go again, another punitive assault against the age pension, how to pay them less. They will never give up giving undeserved mental stress to old age pensioners just because the old age pensioners are an easy target to torture to death!

    • 0
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      Robbo – your comment puts you exactly where you are. As a right wing tool.
      I don’t get a pension as we sacrificed and saved. Look up the meanings of those words. I wish!

    • 0
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      Mick. your right but it would not be any different under socialism or communism tools!

    • 0
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      I take your point HS but I cannot remember any Labor government in the past 50 years grinding retirees into the dust.
      Both sides of politics have flogged off the nation and sold us out and now we have to pay for what was in the past owned by the state. That aside the current batch are not finished with average retirees yet. If my fellow countrymen are duped into putting them back in it will be game on from day 1.
      Personally this is all unlikely to affect my family because we have prepared. Others will not be so fortunate.

    • 0
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      Mick, you are right about Labor not grinding retirees but they have played politics in delaying or not supporting motion to increase age pension

      https://theyvoteforyou.org.au/people

      Among Labor moderate non-supporters were Shorten-Plibersek-Swan-Bowen and a strong non-supporter was…Wong!…

      “Both sides of politics have flogged off the nation and sold us out”

      You betcha! But, we can’t call it treason can we? Perhaps, the great betrayal?

    • 0
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      Mick all Labour supporters get free government money that’s why you vote for them line up for your hamper.

    • 0
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      What else would one expect a government sponsored troll say?

      Did you hear the news about the corrupt LNP MP who conspired with a Chinese Property Developer? Is that why your work buddies are not online today????

    • 0
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      Robb the cards may come anyway. The current government is talking to Serco about it and that $10 000 fee for each card is very tempting and I imagine suits banks and whoever gets the kickback payments as well.

  2. 0
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    Yeah right. Just another piece of flawed “research” to drive future policy south. One of the meanest pensions in the OECD and a fraction of the average weekly earnings, yet still these pointless surveys are conducted and really, for what purpose? I wonder how this all lines up with the survey conducted by Lifechoices which pointed out the “tribes” of pensioners. Not all are equal.

  3. 0
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    Rising cost of living has a lot to do with people being frugal. Let alone the government No one wants to run out of money,

  4. 0
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    Many of us spent the early part of our lives whilst there was still rationing. Our parents lived through the depression and brought us up to be frugal. A habit which we have never lost. we were taught to save, and not to be wasteful.

    • 0
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      Spot on! Big families is another reason. We had more mouths to feed and bodies to clothes and educate. Money had to go further. We watched our parents and grandparents save for things they wanted and happy to wait. Items were not thrown out on a whim. We were trained to b careful.

  5. 0
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    “If your only source of income is the Age Pension, it’s a guaranteed, inflation-linked income stream. They are protected from inflation and investment risk.” Do you really expect me to believe this?

    • 0
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      protected against inflation as linked to consumer price index and adjusted twice yearly. Also is protected from investment risk as the gov carries all the risk wether in surplus or deficit. It is also guaranteed provided you are entitled to it. So what is the problem ?

    • 0
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      The problem, almost a grey, is that the pension does NOT keep up with the real cost of living increases, and the government is constantly looking for ways to further reduce it (e.g. cutting the energy supplement which, at the end of the day, is nothing more than a reduction in the amount of pension). Anybody who trusts that the pension will continue to provide a security and keep pace with inflation is a blithering idiot.

      Of course retirees save if they can. They have to. Nobody knows what’s around the corner, and both the government and the opposition have proved conclusively that we cannot rely on the government for income security, health care, or aged care.

    • 0
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      Reality tells me that with the rapid increase in the population of pension-age people, and the proportion of pensioners to working people, the government is going to find it very difficult if not impossible to maintain the OAP at the level it is now. there will have to be either a reduction in the value of pension payments, or much more stringent qualification requirements. Along with this, there will be greater and greater demand on our public health systems, which are already strained to the limit. The money cannot be stretched indefinitely.

    • 0
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      A guaranteed income stream except when the government changes the rules which it does regularly! This article is an attempt to reduce the pittance that is the OAP on the pretence that pensioners aren’t spending it all. No, a smart person always needs some rainy day money for unexpected emergencies

    • 0
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      JJ – if the current bunch of rats get back in expect the attacks to keep coming. Their form is clear and they are not going to stop. It’ll be the family home next plus withdrawing more help to self funded retirees and even pensioners. You can bet on that.

    • 0
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      Mick throw the rats out and you risk getting snakes instead to strangle all us old folk including OAPs.

    • 0
      0

      My response is what harm has Labor done to retirees in the past? Has it thrown retirees off the pension? Has it brought in unfair tax cuts for the rich which somebody, not the Tooth Fairy, has to pay for?
      I see your point but suggest one has to pick the better option and that is not the LNP whose form and intent are clear cut.

    • 0
      0

      Put the age pension age up to 67. It will be 70 in their next first term in parliament. Also hearing that they will put a price of your house and if it’s worth any more then your pension reduces.

    • 0
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      Mick, I despise the LNP and what they have done to retirees, but now Labor is threatening to finish the demolition of self-funded battlers by taxing them 30% on incomes far less than pensioners are receiving tax-free.

    • 0
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      JJ, Australia’s aged pension costs very little and is highly affordable., We spend about half what other developed nations spend on aged pensions and where their costs are rising fast, ours are falling rapidly. But if the government seriously believed it’s own lies about pension affordability and increasing numbers, it wouldn’t be discouraging saving with assets tests that make it detrimental to strive to be self-funded. Common sense says that if you want more folk to be self-sufficient, you make sure they are well rewarded for saving. This idiotic (or corrupt) government is doing the exact opposite to what is required to reduce the cost of the OAP. And Labor is proposing to make the situation much worse again. It seems they are trying to force all but the very wealthy onto pensions, and yes, pensions will probably be further reduced – but as part of a social engineering exercise, NOT because of anything to do with affordability.

    • 0
      0

      OGR – I suspect Labor will come after wealthy self funded retirees like CEOs, directors and the like who have raped the system for decades to build up an obscene nest egg.
      It would be a bitter disappointment if they came after somebody with assets under $3 million. The current government will do just that but leave those with high wealth untouched. Tax cuts anyone?

    • 0
      0

      JJ, if the government ensured that all big businesses, especially the huge international businesses, paid the tax they should be paying on their earnings in Australia instead of getting off scot free, then we probably wouldn’t have any problems at all in paying adequate pensions to all senior people and to providing decent schooling, hospitals, etc. Also they should get rid of all the tax perks and lurks that are legally available to the really high income people in the country. It always seems to me that the middle and low income people are the backbone to the tax system in this country.

  6. 0
    0

    Who could blame us for spending Less my moneys not growing its shrinking & every thing else is going up health funds , electricity, Petrol & yes I would like too leave my Kids something God they will need it ! this Gov will take away whatever they can from”Welfare ” god I don’t trust Scmo !! I don’t know why I was honest with my taxes etc ,They aren’t honest with us !!!

    • 0
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      Strange how the researcher hasn’t concluded a key reason is lack of trust in the mean Govts we have! He should read the YLC posts, and skip his defective research (save money too)!

    • 0
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      Yes George. The old betray me once shame on you betray me twice shame on me thing going down.

    • 0
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      That’s right, ace. Why shouldn’t we ordinary Joe Bloggs in this country be able to leave something to our kids so that perhaps they may be a little better off in the future because of it. The wealthy are able to leave great assets to their off spring – I can think of one of the wealthiest women in the country who is that way because of what was left to her.

  7. 0
    0

    Less and more at times. You have to have money for the unexpected bills and maintenance that occurs like leaky showers, roof maintenance and on and on and on. Also unexpected surgery, health costs and unexpected government changes.

  8. 0
    0

    Research consistently shows that good mental health depends in large part on how much control people have over their circumstances.

    Why would anyone with a choice want to give up a home over which they have control, and a community where they belong, are known and with which they are familiar. All those factors increase personal control.

    The same with money. The proposition that, under governments like our present one, the age pension is hedged against inflation (especially inflated energy costs, rental costs, fuel costs, etc) is arrant nonsense. When pensioners want control over their finances they can only do what they have always done, save against the next rainy day.

    Pensioners who trust the present government so busy withdrawing all of the social wage elements formerly supplied by local and state governments, to ‘give a damn’ about pensioners, will wait a long time. Since federal support to local government was cut, costs eg rates, rubbish, and roads, have escalated, while libraries, community transport, etc are cut to keep councils afloat. This was a the intention of the LNP/IPA governments that pulled funding to communities via local and state governments. Pensioners? Pah!

    The age pension in Australia is already one of the measliest in the western world, and the government continually reduces pensioner benefits. They need more public money to syphon off to their corporate mates. My mental health and sense of security are constantly threatened by the philosophies they espouse. My financial security is threatened by their price gouging. My dignity is threatened by their contempt for pension beneficiaries.

    Of course I spend less than the pension. How else to I survive a government and corporate sector that actively discriminates against low income citizens, and will be best pleased by my death? After collecting their profits, of course.

  9. 0
    0

    what worries me about the financial uncertainty of old age is whilst I have been fortunate in employment, real estate and had the foresight to save and invest since starting work at 16. Is why some people get aged care for free, or for the price of their pension while I would have to pay top dollar. Also why worry about the cost of medical, If you’ve got no dough they will not let u die just because they can make more out of someone else. I know someone who was on the OAP for 30 yrs and when they passed away they had Two Hundred Thousand in a post office savings bank, this was passed onto their children who had no real right to it as they didn’t need welfare, in short it should have gone back to gov. Its not a bottomless pit of slop for pigs at the trough.

    • 0
      0

      What about ex politicians, almost a gray? Some of them have been on their taxpayer funded pension for years and they will be on it for a few more decades. Your OAP fades into insignificance when you think of ex pollies’ pensions, free holidays, multiple houses, etc. They are the ones with their snouts in the trough.

    • 0
      0

      The old story almost a grey: if you have a zac then hand it over. How you got to that position is immaterial and injustice matters not a razoo.
      On the other hand you have the money stripped from retires being handed to the wealthy via tax cuts…personal as well as company.
      You should know ho NOT to vote for and those who put the tick in the wrong box deserve what is coming.

  10. 0
    0

    We are fairly comfortable in retirement, but looking ahead means we must be very careful with our spending. my husband will almost definitely need nursing home placement due to disability issues, and to purchase placement in just an ordinary establishment will cost us around half a million. Add to that the ongoing costs associated with upkeep of our small home and our savings are going to be reduced to very little. I do not anticipate moving into residential care with my husband, as I am reasonably fit, but will not be physically capable of caring for him indefinitely. And as everyone is stating, we don’t know what awaits us down the track.

    • 0
      0

      I can see why you are concerned but in my parents situation (both still alive) when mum had to go into a nursing home (high care) They then went from receiving pension at couple rate to each rec as single as separated due to health. Her care is paid from her slice of pension with about $20 pfn left for incidentals (she doesn’t need anything). Dad still lives in his own town house with no effect on his financial situation at all. He rec his pension at the single rate and I know for a fact that he has $130k in his super left, mum has nothing as never had any. I think there is a great deal of scaremongering going on which does not help peoples health and wellbeing

    • 0
      0

      Yes almost but it’s different for those who fund themselves. Everything costs the same as a full time worker pays. For those living on the 40% of past earnings we recently read about it’s quite frightening.

      The scaremongering is for those of us relying on our own resources without any help from this crazy government.

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