Australians increasingly worry they won’t have enough super for retirement

Mountains of debt and bigger bills mean Australians are now a lot more worried about retirement, but are their concerns well founded?

Too many retirees are trying to retain their super so there is something to pass on to their children or grandchildren.

Australia has one of the biggest pension pots in the world but that’s proving to be little comfort for workers struggling on the path to retirement.

Indeed, Australians appear to be losing faith in what their post-working years will look like, and more than half are resigned to the idea of not saving enough for a comfortable retirement.

But what is “comfortable” anyway? There are many figures out there from different groups but according to a new study by Colonial First State, Australians now think they need about $820,000 to live well in their later years. (That’s down a heady $1.6m just a year ago.)

But even this lower figure is out of reach for many as 54 per cent of us don’t expect to have $820,000 saved by retirement, according to CFS.

Instead, 40 per cent are preparing to retire with more modest balances of about $400,000, while a worrying 13 per cent, or one in eight, don’t see themselves even having this much in super before they leave the workforce.

It’s particularly bad for women – half of whom don’t expect to save the $400,000 needed to live out a “modest” retirement. Women appear less prepared and less confident than men about how they’ll fund their later years, and the study shows half don’t know what their super is invested in.

“These findings really highlight lack of confidence among women when it comes to achieving their retirement goals,” CFS Super chief executive Kelly Power said.

“We know that less than half of women are aware of what assets their super is invested in, which suggests lower levels of engagement with their super.”

One of the biggest detractors from a so-called comfortable retirement for both men and women is whether a person owns their own home or if they are a renter – or still paying a mortgage, she said.

CFS Super chief executive Kelly Power.

“Both of those, being higher house prices (leading to older first-time buyers and bigger mortgages) and the fact that fewer people will own their own home in retirement, are absolutely two factors contributing to people saying they don’t feel they will be comfortably able to retire,” Ms Power said.

Although those approaching retirement are losing confidence in what their golden years will look, older Australians are also struggling more. About 64 per cent of retirees say they currently enjoy a comfortable retirement, down from 71 per cent a year ago.

Based on a national survey of 2250 Australians, the report found cost of living to be the No.1 concern among retirees.

Dying rich – are annuities the answer?

Although more Australians are fearful of not having enough super in retirement, those fears may in fact be unfounded.

A recent report by the Grattan Institute found that few retirees draw down on their retirement savings as intended, and many are net savers – meaning their super balances grow for decades after they retire.

“This is turning Australia’s multitrillion-dollar compulsory superannuation system into a massive inheritance scheme,” Grattan Institute’s housing and economic security program director, Brendan Coates, said of the findings.

According to the institute, retirees don’t receive enough guidance on managing their savings and the advice they do receive is unhelpful, “steering them into account-based pensions, which require them to manage their spending to avoid the risk of outliving their savings”.

Half of those using account-based pensions draw their super at the legislated minimum rates, meaning 65 per cent of super balances are unspent based on average life expectancy.

To solve the problem, the Grattan Institute says the federal government should offer all Australians a lifetime annuity, giving retirees a guaranteed income for life.

And now we’re hearing reports that Treasury is shopping around the idea of pushing retirees into inflexible annuity products in their super fund with set drawdown rates for those who have more than $200,000 in their retirement savings.

This development has raised alarm bells among advisers and annuities providers.

The nation’s biggest annuities provider, Challenger, has cautioned against state-led solutions to get retirees spending.

GFM Wealth Advisory managing director Paul Nicol. Picture: Stuart McEvoy

“The super system is world class, but we risk failing retirees if we don’t focus on helping them draw down their savings with confidence,” Challenger chief executive Nick Hamilton said.

“Rather than state-led solutions, the focus should be on enabling competition and innovation, unlocking capital for investment, and ensuring retirees have access to a broad range of lifetime income solutions. That’s how we provide more Australians with financial security in retirement.”

GFM Wealth Advisory managing director Paul Nicol said Australia’s retirement system needed more variety, not less.

“This is a real grey area because we’re not exactly sure what’s been proposed, but I think they have to be exceptionally careful with this. Potentially what they’re doing is reducing choices for the consumer,” Mr Nicol said.

“It’s our retirement savings, it’s not theirs. It’s our money and the first principle is if it’s your money, it’s your choice.

He said the majority of his clients were trying to hold on to most of their super so it could pass to their children when they died.

“Perhaps it’s not the way the policy was designed with these income streams, but the very vast majority of our clients are doing their very best to retain their superannuation asset base because they want to know that wealth is intergenerational,” he said.

“They certainly wouldn’t welcome a forcing of (annuities) being mandatory or not their choice, or that their capital needs to be run down.”

Originally published as Australians increasingly worry they won’t have enough super for retirement