Superannuation gap means you could work until you die
The age pension is a great safety net but won’t deliver anything near comfortable retirement. Find out how much superannuation you should have now.
Rising numbers of Australians face the brutal prospect of working until they die if they want a comfortable lifestyle beyond retirement age.
Low median superannuation balances, COVID early-release super withdrawals and record-low interest rates are leaving many savers without enough money to retire comfortably.
Unaffordable housing and retirees saddled with mortgage debt compound the problems, say super specialists, who urge people to take a closer look at their nest eggs.
The latest data from the Australian Bureau of Statistics shows the median super balance of men aged 55 to 64 is $183,000 and for women it’s $118,600.
However, to retire comfortably an individual requires $545,000 and a couple $640,000, according to widely-respected calculations from the Association of Superannuation Funds of Australia.
Author, consultant and former banker Satyajit Das said comfortable retirements would become a privilege for only the wealthy and upper middle classes, and a majority of people would have to “work till they die”.
“They are not going to have enough money,” he said.
“We are now seeing people who have retired coming back into the workforce after two or three years because they realise they actually can’t attain their aspirational retirement lifestyle.”
Role reversals would occur and cash-strapped retirees would have to rely on support from others, said Mr Das, whose new book A Banquet of Consequences: Reloaded launched in March.
“At some point the Bank of Mum and Dad will become the Bank of Sons, Daughters and Friends,” he said.
Last year’s COVID early release super scheme saw 3.4 million Australians withdraw up to $20,000 each from their nest eggs – $36 billion overall – in many cases wiping out years of previous savings.
More than 70 per cent of them now worry about their retirement security, according to a new survey commissioned by the Australian Institute of Superannuation Trustees.
AIST CEO Eva Scheerlinck said COVID’s super burden would largely hit those already facing a retirement savings shortfall – “low-paid workers, women and those in insecure employment” and she said the legislated rise in the compulsory super rate to 12 per cent by 2025 was vital.
The survey found 59 per cent of men who withdrew super were already making extra repayments but only 21 per cent of women were.
“We cannot condemn another generation of women to poverty in retirement or having to work till very old age,” she said.
“Young women, in particular, will struggle to make up the COVID savings gap as many will be entering the phase of their life when they take a career break to have children and their employer super contributions are on hold.”
The Reserve Bank this week stuck with its forecast of not raising the official interest rate above its record low of 0.1 per cent until 2024.
Self-funded retiree Wayne Strandquist, president of the Association of Independent Retirees, said ultra-low interest rates were having a dramatic impact on seniors relying on investment income.
“Term deposits are not good – when you go from 4 per cent to 0.4 per cent that’s a tenth of what you used to get,” he said.
Mr Strandquist built his own nest egg through extra super contributions and investing, and said some people – particularly renters and people without super or other assets – were “destined to continue to work, or they will end up on a full age pension”.
The age pension pays a single person up to $953 a fortnight and a couple $1436, and Mr Strandquist said it was crucial to help those whose financial situations saw them “slip through the net”.
“We have to have a system that picks people up,” he said.
Wealth For Life Financial Planning principal Rex Whitford said the one-third of Australians who sought professional advice would not have to worry about retirement poverty.
“Everybody has the option of receiving advice or doing something for themselves,” he said.
“You can’t compensate people who don’t make the choice to do something for themselves. We call that inequality, but it’s not.”
HOW MUCH SUPER YOU SHOULD HAVE NOW
Super industry group ASFA says $545,000 is required for a comfortable retirement including travel, a nice car, top health insurance, good clothes, restaurant meals and other leisure activities.
Age Super balance required
25 $17,000
30 $54,000
35 $93,000
40 $143,000
45 $195,000
50 $257,000
55 $330,000
60 $415,000
65 $503,000
Source: superguru.com.au
REBUILD A SUPER SAVINGS SHORTFALL
• Make extra deposits as early as possible to benefit from compound interest.
• Use government incentives such as tax deductions, co-contributions and spouse contributions.
• Consolidate multiple super funds to save on administration costs.
• Check your super fees and insurance premiums.
• Remember there’s always an age pension safety net – about 70 per cent of retirees receive a full or part pension.
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