Cost of living derails retirement hopes

More than half of working Australians don’t expect to build up enough of a nest egg by the time they leave the workforce, according to a new survey from Colonial First State.

Colonial First State’s latest retirement report shows more than half of Australians don’t think they’ll have enough saved for a comfortable retirement.

Australians have slashed their expectations for what it means to retire comfortably but more than half still don’t expect to build up enough of a nest egg by the time they exit the workforce.

It’s even worse for workers over 50, most of whom can’t see themselves saving enough for a comfortable retirement, according to a new survey from Colonial First State.

The biggest shift in the past year has been in expectations of what a comfortable retirement looks like. Last year, working Australians estimated they would need $1.6m to live comfortably in their post-working years. In the space of just 12 months, this has halved, to $823,000, according to CFS’s latest Rethinking Retirement report.

This is higher than what the industry estimates is needed for couples ($690,000) and singles ($595,000) but the average Australian is falling short on even those lower numbers.

The latest data released by the Australian Taxation Office for 2022 shows the average account balance for men in their early 40s sits at just under $132,000. It climbs through the age brackets to peak at $488,000 for men aged 75 and over. The median figures are much lower and peak at $206,000 for men in their mid to late 60s.

Women have lower balances on average than men, with women in their 40s tipping just over the $100,000 mark, and this rising to a high of $416,000 for those over 75. Again the median balances are lower, reaching a high of $198,000 for women in their 70s.

Despite the big drop in expectations of how much of a nest egg is needed in retirement, more than half of Australians – 54 per cent – cannot see themselves saving at least $820,000 by the time they finish working. For the over 50s it’s even worse, with just 42 per cent reaching this savings goal.

Colonial First State CEO of Superannuation, Kelly Power.

While those approaching retirement are losing confidence in what their golden years will look like due to cost-of-living pressures, older Australians are also struggling more: 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, with more than three-quarters saying their pension payments are being absorbed by essential living costs such as groceries and utilities. One in four are using their pension to pay down debt.

The cost-of-living crisis and higher levels of debt are weighing on working Australians’ expectations of what retirement will look like, according to CFS Super chief executive Kelly Power.

“Cost of living is still the biggest concern and that’s creating this (fear) about whether or not people are going to have a comfortable retirement,” Ms Power told The Australian in an exclusive ­interview.

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

“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.

Even with Australians tempering their expectations on how much of a nest egg they will need for retirement, there is still a glaring mismatch when it comes to what they want to spend each year.

Australians over 50 expect they will need $100,000 a year in retirement to live comfortably, while those in their 40s say they will need $150,000. For under 40s, it is even higher, at $180,000 per year.

A super balance of $823,000 at age 67 today would give an annual income of $68,000, according to the government’s MoneySmart retirement calculator.

“The cost of living has shaken confidence in retirement expectations but it has also led to more people engaging with their super,” said Ms Power.

Just over 40 per cent of Australians have actively reviewed the performance of their super in the past year, up from 36 per cent in the year prior. More people are seeking advice too – 28 per cent have reached out to their super fund in the past year, up from 23 per cent.

Originally published as Cost of living derails retirement hopes