Retirees living in needless frugality

According to new research, most Australians are living in unnecessary frugality during retirement, leaving behind large superannuation balances. This seems at odds with recent data showing that 36 per cent of pensioners live below the poverty line.

Spearheaded by behavioural economist Dr Andrew Reeson, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) collected and researched superannuation data to find out how Australians are living out their final decades.

In the past, emphasis has been placed on encouraging retirees to be thrifty and avoid spending lavishly during retirement. CSIRO’s organisational and socio-economic sciences team found that this message carried through so successfully that Australians are actually being more frugal than necessary.

Mr Reeson said, “There’s been popular concern about people spending too quickly and blowing it on around-the-world cruises, and falling back on the pension.

“But now other research, and our own data, shows that…most Australians actually spend during retirement very conservatively, withdrawing their super at or very close to the minimum requirement.”

Some reasons why Australians are concerned about saving their superannuation include being afraid of running out of super and subsequently relying only on the Age Pension, and wishing to have a decent sum of money to bequeath to their family.

Further supporting the CSIRO’s findings, financial consulting firm Rice Warner released estimates revealing that Australians bequeathed $8.5 billion of their remaining superannuation accounts to family.

Professor Deborah Ralston, from Monash Business School’s Department of Banking and Finance has also been researching the issue. She suggested that Australians have become good at saving for retirement and now need to be advised on how best to use their super during these years.

“I think we really have done well on promoting the accumulation stage of superannuation and getting people to understand the importance of saving and supplementing their aged pension, but we haven’t yet come to grips about how we then use super in the post-retirement stage,” she said.

Professor Roger Wilkins, from the Melbourne Institute of Applied Social and Economic Research suggested that, while being frugal was not a negative thing, it became harmful when Australians were unnecessarily going without just to save money.

“We should be encouraging those in retirement to instead enjoy a good standard of living if that’s what they can afford,” Mr Wilkins said.


Opinion: Too many mixed messages

It is widely understood that the economic situation of many people in retirement is tough. So it comes as no surprise that in this unstable economic environment, Australians are being overly cautious about their spending.

Retirees in Australia are not a homogenous group. The notion that most Australians are living in unnecessary frugality silences the fact that many older Australians are struggling financially. In September the Global AgeWatch Index reported that one-third of Australians over the age of 60 are now living below the poverty line.

It’s understandable that those in retirement might worry about spending all their super and run the risk of having to rely on the Age Pension.

Every week there seems to be some new research advising you how to save, spend and invest your super. And then, just when you think you’re on top of it all, another report is released to contradict what you thought you knew. As such, negotiating the tricky territory of your finances during retirement is no easy feat.

So, to whom should you listen?

Unfortunately, there’s no simple answer. When it comes to your finances in retirement, it’s important to stay informed. By all means, listen to economists and read reports on the topic, but it’s important that you apply this knowledge to your own individual circumstances.  

Were you surprised by the CSIRO research findings? Can you relate to them? How do you make decisions about your finances with so much contradictory information going around?

Written by ameliath