The majority of Aussie retirees live on less than the pension each year

Baby Boomers know all too well the value of working hard, spending within their means and saving for the future.

Their collective prudent values helped this generation to amass large amounts of wealth in the form of property, superannuation and other financial assets, but new research indicates they’re not spending it and enjoying the fruits of their labour anywhere near as fast as one might think from the headlines about ‘spending the kids’ inheritance’.

‘Many retirees are scrooges when they don’t need to be’, Sydney Morning Herald reporter John Collett wrote earlier this week, in response to research released by actuaries Milliman that analysed the spending habits of more than 300,000 Australian retirees.

The Retirement Expectations and Spending Profiles (ESP) analysis found that more than half of Australian retirees are spending less than the amount paid by the government Age Pension each year.

The current age pension for an individual is $894.40 per fortnight (or $23,254.40 a year) and $1,348.40 for a couple living together (or $35,058.40 a year*). This rate of annual spending for both single and coupled retirees falls slightly below the ASFA Retirement Standard for a modest retirement, which ASFA pegs at $24,506 for singles and $35,189 for couples. It’s also well below ASFA’s standard for a comfortable retirement ($44,011 for singles and $60,457 for couples).*

Jeff Gebler, a financial risk management consultant and author of the Milliman report, noted that the findings came as a particular surprise, “given the commonly used 50 per cent of median income poverty line typically captures many retirees”.

“For example, the latest Australian Council of Social Service Poverty in Australia report estimated that 13.9 per cent of Age Pension recipients were living below the poverty line,” Gebler wrote. “The OECD’s Pensions at a Glance 2015 report found a more pronounced issue. It ranked Australia second lowest on social equity among 33 countries, with more than one-third of pensioners living below the poverty line.”

Gebler speculates that retirees may be attempting to preserve their savings in order to self-insure against longevity risk – that is, the risk of out-living their savings.

“This concern may be a driver for the substantial proportion of retirees with account-based pensions who draw down the minimum legislated annual amount,” Gebler wrote.

He also speculates whether the experience of having lived through multiple recessions is driving Baby Boomers’ frugality in retirement. “Many retirees today entered the workforce during the 1970s, a period when the Australian economy suffered four recessions in a decade. Have these experiences made some retirees more cautious now that they are no longer in the workforce?” Gebler wote.

The seemingly cautious spending approach being taken by today’s retirees is echoed in a new report by National Seniors Australia, called Hope for the best, Plan for the worst? Insights into our Planning for a Longer Life.

“Australians are enjoying among the longest life expectancies in the world, a trend which is expected to continue. They are also being asked to do something not previously required of their parents and grandparents, namely, to save for a longer life than expected,” the report stated.

“The best explanations why people save for later life are based around self and family interests and, in some instances, social responsibilities. The challenge of ageing is to make earnings from 40 to 50 years of work cover 80 to 90 years of life.”

Are today’s retirees smart to be Scrooges, particularly when they’re not exactly sure what their future home and aged care requirements will be?

“Unfortunately, people need to make current sacrifices in service of their long-term interests to resolve many of our most pressing social and economic issues. The failure to save enough to pay for later life was apparent in the evidence collected for this study,” according to the National Seniors Australia study.

Are you worried about outliving your savings?

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