The Australian Institute of Superannuation Trustees is calling for a “super reality check” to ensure Australians have a better understanding of the level of income they can expect in retirement.
In a report released yesterday, AIST said commentary about superannuation balances and the adequacy of retirement incomes needs to be more “informed and realistic”.
“There is far too much focus on the size of super balances at retirement and not enough on the actual incomes delivered by our retirement income system,” the report said.
“Key factors that work to significantly boost the income for most retirees – the age pension, the tax-free status of super in retirement and the fact that super is designed to fund income in retirement and not for estate planning purposes – are all too often ignored.”
AIST noted that most Australian workers nearing retirement are likely to have close to $100,000 in superannuation. Further, the average retirement “nest egg” for a full-time worker is expected to be in the order of $550,000 in today’s dollars by 2060.
“As our modelling has shown, $550,000 will deliver adequate retirement incomes for the vast majority of retiring Australians. And even the modest superannuation balances most workers approaching retirement have today can provide a reasonable retirement income when combined with the indexed age pension,” AIST stated.
“We can do without the feverish scaremongering that $1 million of super isn’t enough and that the age pension is unaffordable and can’t be relied upon. If the debate about super is to be meaningful, we need less focus on the fears of a privileged few and more on what is relevant to most Australians.”
AIST also said that retirees relying on both the pension and super doesn’t mean that super “isn’t doing the job it set out to do”.
“In fact, the super system is functioning as it was intended to, by boosting retirement incomes while keeping the cost of public pensions sustainable,” AIST stated.
It is interesting how now it is seen as a good thing that people make some sort of crystal ball bet on what their lifespan is likely to be and run down the capital rather than try to live off the earnings. If you misjudge by 10 years they will be a pretty miserable 10 years when it should have been celebrated you lived longer.
Strange how it is also seen as a bad thing if a self funded retiree passes away and leaves say an unencumbered house and $300-$400K in super to their kids to give them a boost in their retirement planning.
I guess it depends on how you define “adequate retirement income”, and what you want your lifestyle to be in retirement.
$550k earning around 3.5%pa would barely last 15 years if you are spending around $48k per year. Would run out a hell of a lot sooner when you consider most people would spend up big in the first couple of years doing all the things they couldn’t do while slaving away to pay the mortgage and put the kids through school – ie house by the beach, holidays every summer, overseas travel, new cars….
If you want to spend your last 15 years sitting at home with the heating off and the lights turned out, then a $550k balance would do just fine. I’d suggest most people would want a little more than that.
Well good luck to those who wish to retire on less than $1million in the next 10 years. With significantly lower interest rates than we have experienced in the past they can take that risk. Sure it can be done but for a lot of people they will have to make significant adjustments to their lifestyle in retirement if that’s enough.
This is the article that has been needed for years. I am so tired of reading about required super mega-balances which, in the fine detail, indicate the writers only look at generated income to live on, excluding the draw down of capital that is all a part of the superannuation pension process.