Most retirees are more than comfortable and many can actually save after they stop working , leaving a legacy almost as large as their retirement nest eggs, according to new analysis.
The report from independent think-tank the Grattan Institute, Money in Retirement, More Than Enough, claims that retirees are less likely to suffer financial stress than some working-age Australians
The report’s authors, headed by John Daley and Brendan Coates, also argue that many low-income Australians will actually get a pay rise when they retire, through a combination of the Age Pension and their superannuation savings.
Based on its modelling, the institute believes the Superannuation Guarantee should remain at 9.5 per cent instead of being increased to 12 per cent by 2025-26, as planned.
The report says most workers today can expect a retirement income of at least 91 per cent of their pre-retirement income – well above the 70 per cent benchmark endorsed by the OECD.
Australians tend to spend less after they retire, it says, and less again as they enter their 70s and 80s.
“The financial services industry ‘fear factory’ encourages Australians to worry unnecessarily about whether they’ll have enough money in retirement,” said Grattan Institute chief executive John Daley.
However, the report does concede that the retirement income system is not working for some low-income Australians who rent, particularly in Sydney and Melbourne, and that this problem will get worse “because on current trends home ownership for over-65s will decline from 76 per today to 57 per cent by 2056”.
To counter this, it recommends that the maximum rate of Commonwealth Rent Assistance be increased by 40 per cent, delivering an extra $1410 a year for retired singles and $1330 for couples.
The report also recommends that the value of the family home be included in means tests for the Age Pension and aged care, suggesting the threshold could be $500,000.
YourLifeChoices’ 2018 Retirement Matters Survey, completed by almost 6000 respondents, found that only 23.6 per cent of retirees believe their income will last, with 44.6 per cent saying “no” and 31.8 per cent being “unsure”.
Meanwhile, Industry Super Australia has challenged the Grattan Institute’s analysis, describing it as “deeply flawed”.
Industry Super’s retirement income adviser, Phil Gallagher, said the institute’s modelling assumptions were “unrealistic and unrepresentative of most Australian employees”.
The group said there are three key flaws:
- assuming everyone can top up their super with extra voluntary contributions resulting in lifetime contributions that could be up to 50 per cent greater than the basic super guarantee
- assuming a continuous uninterrupted 37-year working life , ignoring the reality of many workers, especially women
- assuming living standards in retirement shouldn’t keep pace with the rest of the community.
Mr Gallagher said: “Across all age groups, just 12.2 per cent of employees with super make additional concessional contributions but Grattan appear to have assumed that everyone does.
“There are many other problems, including assuming an unbroken career which is not at all representative for women, and setting retirement benchmarks that are not pegged to community living standards.”
Are you saving in retirement? Will you leave a substantial legacy? Are you receiving 91 per cent of your pre-retirement income?