The data is in and it’s not pretty for Australia’s hopes of a self-funded retirement – under a quarter of single men and woman aged between 55 and 64 have enough savings to give up work comfortably without relying on the Age Pension.
But there are practical measures workers nearing end of their full-time working lives can take to improve their situation, as financial planning pros told Starts at 60.
This is the situation and, if you’re worried about your finances after work, here’s what you can do.
The state of pay
The CommBank Retire Ready Index shows that just 20 percent of men aged 55-59 and 15 percent of women in the same age group have enough wealth alongside their pension entitlements to meet the Association of Superannuation Funds of Australia’s (ASFA) ‘comfortable’ standard of living in retirement.
The situation is worse for the 60-64 age group, with just 18 percent of men and 9 percent of women on track for a comfortable retirement, even with the pension added to their personal wealth.
The stats are better for couples – 83 percent of 55-59s and 76 percent of 60-64s will have enough wealth stashed to meet the ‘comfortable’ benchmark.
There’s a few reasons for that; firstly, couples have economy of scale – it’s cheaper to live as a couple because expenses are usually shared – and secondly, two people generally have a higher level of combined savings than a single person. Thirdly, the numbers for women are worse because they tend to have smaller wealth pots because they spent time out of work caring for children, as well as the need for more money to fund their retirement because they tend to live longer.
So, what does ‘comfortable’ mean? According to ASFA, that’s $59,619 a year for a couple and $43,372 for a single person. Those projections assume that the retiree owns their own home, is reasonably healthy and has enough cash to enjoy leisure pursuits, a decent car, some modern tech and occasional overseas holidays.
It takes a substantial chunk of cash to achieve that kind of worry-free retirement.
A woman aged between 55-59 who’s currently earning between roughly $47,000 and $59,000 would need to have $405,000 in savings now to put her on track to retire comfortably at age 67. A man of the same age and income bracket would need $345,000. The amount required in savings gradually reduces as you go up the income brackets because of the effect of employer super contributions as a percentage of salary, so a woman earning, for example, roughly $66,000 to $78,000 needs savings of $340,000 and a man needs $285,000.
The combined sums for couples, again, are lower due to economies of scale, and for the 60-64 age bracket are higher, given they’re closer to retirement.
These numbers are in CommBank’s Retire Ready Index research, released on Monday. To see more detail on what you should have put aside for a comfortable retirement, Commbank has a retirement savings calculator.
What can I do?
Even with the addition of the full Age Pension, the research by CommBank shows that a relatively small proportion of the population nearing retirement age is on track to have the comfortable retirement that includes occasional foreign jaunts and plenty of recreational activities.
But financial planners told Starts at 60 that there are some moves workers nearing retirement can make to push themselves closer to the comfort zone.
CommBank itself advises sensible advice: double-check that you have no more than one super fund and if you do, consolidate them to save on management fees.
Linda Elkins, executive GM of advice at Commonwealth Bank, also says: “People who’re approaching retirement could give their savings a boost by taking advantage of the current superannuation caps before they’re reduced on July 1.”
This is advice that Cath Sharples-Rushbrooke, a manager at Advice Services Australia and a certified financial planner (CFP), backs. She advises topping up your employer super contributions by salary sacrificing additional contributions up to the maximum amount of $35,000 a year for those aged over 50, before that limit drops to $25,000 a year on July 1.
Although it’s more complicated so requires professional financial advice, Sharples-Rushbrooke advises also considering using the next few months to activate the bring-forward, tax-free contribution allowance of $540,000, before it drops to $300,000 over three years from July 1. In short, the bring-forward rule allows savers to exceed the non-concessional cap in a single year by starting the clock on a certain amount of contributions over three years.
If those sums are too large for your purposes, Sharples-Rushbrooke advises getting to grips with your finances as an absolute minimum.
“A personal budget is one of the best tools for helping you to work out where your money is coming from and where’s going,” she says. “If you’re earning more than you’re spending, you’re in a financial position to work towards your goals and prepare for your retirement.”
Depending on your personal circumstances, that could mean anything from focusing on repaying debt so you enter retirement without encumbrances to planning ahead for the trip of a lifetime once you shut the office door for the final time, she adds.
Tony Sandercock, another CFP and the owner of WeTalkMoney, doubles down on the budgeting advice. He says everyone, not just pre-retirees, need to focus on the three biggest expenses: home, car and food, and advises carefully examining how efficiently you use your dollars on those “big three” areas.
For example, he suggests looking at what you’re spending on dining out.
“Australians spend nearly a third of their weekly household food budget on dining out and fast foods,” Sandercock says. “If you could save $2,000 by eating out every other week and pay that off your mortgage, over 20 years you could have an extra $80,000 in your pocket.”
For those closer to retirement, examining your home and transport costs could be key.
“Don’t think about what’s the maximum you can afford, think about what your need,” he says. “You can combine your transportation planning with your housing planning to cut down on costs. Living close on work means less commuting.”
Sharples-Rushbrooke says there are some measures women, who are most at risk of falling short of their retirement savings goals, can consider to make up ground.
Women, particularly those over 60, could look at working part time for longer while using a tax-effective “transition to retirement” income stream, she explains. And those earning less than $13,800 a year could check out whether their partner can make a spousal contribution to their super in return for a tax rebate of up to $540. The earnings cap will jump to $40,000 for these rebates from July 1, which means more couples will be able to take advantage of the tax break, she says.
Or people with super balances of less than $500,000 could consider making catch-up contributions from the financial year 2019-20, because they could potentially be able to carry forward their unused concessional contribution cap amount on a five-year rolling basis, according to Sharples-Rushbrooke.
As CommBank’s Elkins says: “The good news is that many Australians who may not currently be on track for a comfortable retirement are very close. A little bit of planning could see them reach the comfortable level.”
Are you confident you’ve saved enough for retirement? Did the introduction of super funds benefit you or has it been no help? Does your budget allow for savings or do you expect to have to continue to pinch pennies in retirement? Does Australia have its retirement funding system right?