Age Pension

Retirees failing to save enough as they ‘underestimate how long they’ll live’

Jun 14, 2019

The survey was conducted at the end of last year before being presented at last week's Actuaries Institute annual summit in Sydney. Source: Getty.

When it comes to saving for retirement, it can be difficult to know how much to set aside, however new findings have revealed that Australians may be failing to put away enough cash to allow them to live comfortably once they have given up work.

Recent figures from the Great Expectations report, compiled by Melbourne-based superannuation group Mercer, revealed that Australians do not have the savings they need, forcing them to spend less in retirement.

“The amount of money people think they will need in retirement does not align to what retired people are actually spending,” the report stated. “If we assume this is because people do not have the savings they need and are forced to spend less in retirement, it demonstrates a clear need for better communication and engagement.

“For example, super members’ annual statements currently include their balance but this is very difficult to convert into an income. You can see how someone with $100,000 in their super could think this will be enough because it’s a lot of money! However, in reality this balance is only likely to achieve $4,400 a year.”

One reason for this could be that Australians are failing to predict their longevity correctly, with many younger people grossly underestimating how long they will live. However older Australians, particularly those already in retirement, were found to do the opposite.

“Our survey, as with many surveys in the past, has confirmed that people are not good at estimating how long they will live,” the report stated.

“A greater concern is that young people do not think they will reach their life expectancy, yet older people think they will live significantly past it. For those taking on this longevity risk and using the traditional account based pension this could mean initially withdrawing too much, depleting balance levels and then withdrawing too little later in life.

“In reality, however, we tend to see retirees withdrawing the minimum amounts throughout retirement for fear of running out of money too soon.”

The survey, which was conducted at the end of last year before being presented at last week’s Actuaries Institute annual summit in Sydney, looked at the saving and spending habits of Australians who are approaching, or already in, retirement.

More than 1,000 Australians, aged 55 and over, took part in the survey, all of whom had a superannuation balance in excess of $50,000.

Mercer Senior Partner David Knox also spoke at the summit last week, as he clashed with Grattan Institute Chief Executive John Daley about the planned increase to the super guarantee.

Daley claimed that the planned increase – which will see compulsory contributions rise from 9.5 to 12 per cent, beginning in 2021 – should be scrapped as he believes the current retirement standards – which are around $43,300 for a home owning single person and $61,000 for home owning couples – are too generous.

Daley based his claims on the Grattan Retirement Income Projector (GRIP) modelling which was initially published last November and found that Australians are retiring far more comfortably than the AFSA standards suggest.

However Knox disagreed, criticising the Grattan Institute for only considering the income of retirees in the five years leading up to retirement, pointing out that many people wind down and may work less in the lead-up to retiring.

“The living standards we’re talking about are actually set in your 40s and 50s, not in your 60s. We should be looking at the income you earned in your 40s and 50s,” he said.