Push to make retirees withdraw more of their super every year

Q. What is most retirees’ biggest worry?

A. Running out of money.

Q. What is one of their main objectives?

A. Leaving an inheritance.

Combine those two elements and there’s a big problem say economists – retirees are not spending enough in retirement.

A whopping 71.3 per cent of the 6145 respondents in the YourLifeChoices 2022 Insights Survey said leaving an inheritance was a priority and 72.5 per said that would not prevent them from funding a more comfortable retirement. But … 59.3 per cent said they did not believe their savings would provide an income for life.

That equates to spending hesitancy, and that is bad for the economy apparently.

Financial Services Council (FSC) chief executive Blake Briggs says research delivered by NMG Consulting demonstrates that retirees are drawing down 17 per cent less income from their superannuation than what is ‘optimal’.

He says that in the next decade, when three million Australians start drawing down their collective $1.5 trillion in super savings (from the $3.4 trillion pot), weaknesses in the design of our otherwise world-leading retirement system will be exposed. And retiree living standards will suffer as a result.

Writing in The Australian, Mr Briggs says: “… without reform to ensure that superannuation operates as efficiently as possible to raise retirees’ living standards, the system will continue to be targeted by vested interests arguing for higher taxes on retirement savings.”

A solution, he says, is to increase mandated retiree drawdown amounts by 10 per cent each year. That way, aggregate income paid to retirees would be increased by $397 billion by 2050 and total superannuation assets would be 12 per cent lower by 2060.

That strategy would, however, halve the amount of super left as bequests by 2060, dashing one of retirees’ key objectives.

Mr Briggs says FSC has used the research to develop a road map with three objectives:

  • Encouraging innovative, new retirement income products to come to market, including a disclosure framework to allow consumers to compare retirement income products and a simplified process to modernise legacy products
  • Helping consumers see and use superannuation as primarily for spending during retirement, including making financial advice more affordable and amending disclosure rules to have a drawdown focus
  • Helping consumers take control of their superannuation by simplifying how it interacts with other parts of the retirement system, including the Age Pension, aged care and healthcare.

Mr Briggs says: “Australians work hard over their working lives to save for their own retirement, and we owe it to them to deliver policy settings that give them the confidence to enjoy the highest standard of living in retirement.”

Sound the applause. But there’s a significant hitch, you say, that only a crystal ball can solve – how long will you live?

These responses are typical of retiree views on the FSC proposal:

“Yes, super should be spent during retirement and not bequeathed. Fundamental and insoluble problem though … will I live another five years or 30 years? Prudence suggests the latter needs to be planned for, which means it’s inevitable on average that plenty of capital will remain unspent.”

“Reasons I am not spending more of my super (age 75): 1. I may live to 100 though I hope not. 2. Unknown future liability for care bills for myself and my wife. 3. Increasing medical bills. 4. My children will not have adequate means for their own retirement from their meagre defined contribution super, and will need anything I can leave them.”

The government’s Retirement Income Covenant, which came into effect in July 2022, was developed to “support retirees to have the confidence to spend their hard-earned savings, while enabling choice and competition in the retirement phase of superannuation”.

While there have been some new products from super funds, the problem remains – spending hesitancy due to the unanswerable question of longevity.

If you’re retired, are you spending enough to live the retirement you want? Or are you being cautious because you don’t know how long you will live? Share your thoughts in the comments section below.

Also read: Five facts everyone needs to know about life expectancy

Janelle Ward
Janelle Wardhttp://www.yourlifechoices.com.au/author/janellewa
Energetic and skilled editor and writer with expert knowledge of retirement, retirement income, superannuation and retirement planning.


      • Why angry?
        Haven’t you better things to do than get angry with other peoples financial affairs.
        Life is short, make everyday a good & happy day.
        As they say, it’s up to them what they do & that includes how they spend.
        So cheer up old grumpy and start living a happy life.

        • What makes me angry is people who could have saved for their retirement and chose instead to bludge off fellow taxpayers by claiming the aged pension. A former colleague recently told me he “had beaten the system”. He paid off his house at age 55 , sold it and lived off the proceeds till he could qualify for the pension. He lives in housing provided by fellow taxpayers, has an aged pension, gopher provided by fellow taxpayers and a book of taxi vouchers provided by taxpayers.

    • I’m with NS and Peter Taggart. If my wife and I need high medical care at the end of our lives it would bankrupt us, but had we spent our money along the way we would get in for free. How is that fair. All Government policies seem to be to rip off people who saved for their retirement and reward those who didn’t.!!

  1. Investors, and especially retired, should understand that superannuation is intended to be spent down during retirement rather than left as an inheritance. Average life expectancy is less than 87 years and fewer than 1% of adults (220,000)are living to 95 or older so increasing the compulsory withdrawal rates and especially the taper after reaching 85 years is a good start.

    As mentioned in the article, medical and longevity risk are major issues discouraging many retirees from spending down and addressing these should be the focus of policy interventions to change retiree behaviour.

    A modest intervention could be to cease superannuation (accumulation) availability at 85 years, 80 years even better. Retirees will no longer have the option of using superannuation as a tax sheltered investment and will need to either withdraw the balance or rollover into pension phase as they choose subject to the transfer balance cap.

    Another budget friendly intervention could be to further reduce the subsidy on superannuation earnings from the proposed $3m by linking it to the transfer balance cap of $1.9m.

  2. I have several issues with anyone proposing how I spend my superannuation as per the following:
    1. We have worked incredibly hard throughout our life, making sacrifices and putting money into superannuation etc, so that we will be in a good position to live our lifestyle in retirement. Please note we worked hard and put money into superannuation so we do not have to rely on the Government handouts. So why is someone else telling us what we should do with our money?
    2. Would all these commentators give me money to live my lifestyle if we run out of money. I bet you NO. Or if you say yes, please provide me with an address where I can send my bills.
    3. If we get sick and need surgery by a surgeon of our choosing, will you pay for it? Will you cover my medical costs?
    4. If I need to go into respite care or some other facility, will you pay for it? I bet you NO. I will have to rely on me. I have recently financially supported a family member in respite care. I did not see the Government covering all the costs. We had to cover the costs from our superannuation not yours.
    5. Why is it someone else’s problem how I spend my money? Do I tell you how to spend your money?
    6. Why can’t all of you work hard to reach a stage of life where you have the choice of spending your money the way you want to, without anyone else telling you what to do?
    7. Are you asking me to be dependent on the Government? What a looney suggestion?
    8. Janelle, please don’t generalise what others should do with their money. Try living your life and let us live ours. Do you want me to tell you how you should live your life? I bet you the answer is NO.
    9. I would love to talk to the people who are so worried about my lifestyle. Let me be and let me live my life. We do not live in an authoritarian state, so stop telling me what to do and changing the rules on us retirees. Once upon a time, the Government told us to save for our retirement. We have done that. Now you want to tell us how to spend our money and how much? You are absolutely crazy.

    Go live your life and leave us retirees alone. Let the Government support those that need assistance and leave us to live our lives the way we want to and spend our money the way we want to. None of your business.

  3. I don’t know about anyone else but leaving a large chunk of money to my children was never a part of my retirement planning.
    If these so-called experts had their finger on the pulse as much as they think they do, they would realise that many seniors watch their spending due to the rising cost of being in an aged care facility at the end of their days.
    Many are terrified of the unknown costs associated and fear being left without having enough “Buy in” to have a single room and dignity at the end of their life.

  4. NS ran through it quite well. Essentially we, in Australia as Australian citizens, live in a democracy. A democracy that gives us freedom of speech, freedom of action and freedom of choice (within the Legislated Laws as passed by our democratically elected Parliaments).
    Beyond that, what we do with the assets that we have gained through legitimate activities during our lives is no-one else’s business but our own.
    If it isn’t fitting in with some over-reaching Government plan, maybe it’s the Government at fault and not the people.
    Again, how we bequeath those residual assets at time of death is our choice and nothing to do with any Government. (I know that now the Voluntary Assisted Dying Laws are coming into play, they’d like us to check out in an orderly and predictable sequence, that is still a matter of personal choice.)

  5. All I can say that 73% of members need a reality check. And are stupid. Nothing makes me angrier than hearing seniors say their main aim is to leave money for the kids. I am single, always had to save & struggle in my own, but now at 70, I do what I want when I want. And that includes spending MY money the way I want to. Only have one child, who luckily feels the same. Refuses to take money from me, and drives me mad telling me to spend my money, as I have worked hard for it, just as she is working hard for her future (she & her hubby have chosen to be child free, which I fully support). I don’t have a huge amount of super, I get full pension, still choose to work 10 hours a week, and if anything, I am putting money into super. I spend my money as I want to.

    • I agree with you upto a large extent. The main aim of my life is to live the way I want. We love travel and fine dining. And that is our choice. We will probably end up spending most of our super by the end of our time.
      It is the choice to do as we please, within the confines of law obviously, that we want. However, I am OK with someone not spending all their super. We don’t know their circumstances so we can’t comment

  6. As we age we tend to spend less on physical things. A % of our super is therefore left unspent. Under current rules Centrelink penalises us if we give money away (more than $40k in 5years). How about they change the rules and allow us to give money to the kids before we die and when they most need it. (for housing, schooling etc). This will free up a lot of money and get it back into circulation. We are not going to give it away while Centrelink benefits from it !

  7. We are living very comfortably in our retirement. I usually travel twice a year to other countries and also travel quite extensively within Australia. We have two cars and for the past two years have taken our minimum 2.5% of super and are still saving money. We do not try to limit our expenditure in order to provide an inheritance for our children.

    If we are forced to up the withdrawal from our super fund all that will happen is that non super accounts will increase by an equivalent amount. We already have a six figure bank account. I see no point in being made to add to the bank account and lose the opportunity to get a real return on savings.

    Maybe we should sell our existing comfortable house (have been debt free for the best part of 30 years), cash up our SMSF and buy a McMansion in a prestigious suburb. Then I could qualify for a part age pension and become asset rich and cash flow poor. It is one way to get back at the ridiculous idea that if you a higher income then you will spend more.

    • nobody has an issue with retirees taking the minimum allocated pension but if there are millions in a retiree’s super then I am all for requiring them to withdraw any excess over transfer balance cap. Wealthy retirees can easily decide whether the amount withdrawn from super it sits in savings or higher earning investments, just not the heavily subsidised superannuation system. Good luck to them if they have six or more figures in savings accounts or investments; It’s not the taxpayers’ problem to subsidise their investment returns.

      I also advocate increasing the taper from 75 on to further reduce the amount sitting in the tax advantaged superannuation environment. Taxpayers should not be required to subsidise funds in superannuation just because someone wants to leave an inheritance. Superannuation is intended to be spent down in retirement.

  8. One minute the government want us to slow down spending due to inflation now they are saying spend more of your superannuation. It was the labour government that brought in compulsory super for employees. The superannuation guarantee was to address low savings in peoples accounts, people who have worked hard ALL their lives to save money for Retirment and you expect us to now spend willy Nilly. Janelle it may be ok for you to spend money as you seem to have a job something people who are in retirement don’t have, therefore they tend to be more cautious with their money not all of us have million super accounts & who knows how long we will live for and if we wish to leave it in an inheritance that is our business it is our money, money which will one day be put back into the economy one way or the other as it will probably go towards funding a new house or something of the like. (That is if they are not totally out of reach $ wise) for our children. To rely on just a pension would be irresponsible so leave super alone and ask where has all the extra money gone too when interest rates go up and these executives are given huge amounts in bonuses for example yet those on the workplace front e.g nurses for example get lip service. It is bad enough the prices we all pay for the cost-of-living look what happens when the $ runs out or the landlord raises the rent to ridiculous levels and people cannot afford it they are out on the street. would it not be more productive to making people’s lives easier if these problems were addressed instead of going for the easy option of saying let’s grab the retiree’s $, its ours we have saved and earned it we do not tell others how to spend it.

  9. Thankyou NS.
    Saves me writing the same.
    In terms of Agedcare I recommend the Agedcare providers Association white paper submission for a one sided read.
    No sign of customer input other than one committee member.
    All about money and assuming those with Super are going to use their homes.
    Agedcare homes Boards are in for a rude shock.
    I remember when Banks replaced people with Shareholder value.
    Agedcare homes submission through their providers Association replaces residents input with residents money, ie profits,no sign of leadership as to how improvements can be made to care.
    They waste money with no resident input and to be honest I don’t think the residents have agree to any spending decisions in over 3 years.
    Any Govt that touches Super will be out at the next election.

    The govt just wants to grab Superannuation rather than Treasury money.
    Noel Whittaker on page 37 of the Sunday Times,in WA describes it well.
    The Agedcare providers in April/ May made media Statements forecasting that the wealthy should pay more.
    More than What.? My wife’s care costs 100,000.00 a year including the Rad and I spend 70 hours a week assisting.

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