16 Jul, 2019
We’re all living longer. So could you outlive your retirement savings?
If you’re 65 today, there’s a good chance you’ll enjoy a long and happy retirement that lasts into your 80s.
Our lucky country enjoys one of the highest life expectancies of any country in the world, at 80.4 for men and 84.5 for women.
However, living longer means you need dependable income to cover your essential expenses and maintain your standard of living.
Research shows that more than half (53 percent) of Australians fear outliving their retirement savings and 28 percent regret not putting more money away for retirement.
The National Seniors Feeling Financially Comfortable report also reveals that 84 percent rated having a regular and constant income as a very important factor in their financial planning.
The report reveals a high preference for regular, constant income, such as an annuity, and for income that lasts for life.
National Seniors chief executive Professor John McCallum says despite the widely publicised financial estimates of a comfortable retirement people still don’t really think in those terms.
“Comfort is predominantly about attitude and where you are relative to your friends and aspirations,” he says.
“For most people it’s a matter of cutting your coat according to your cloth rather than achieving any magical number.”
The National Seniors research reveals that Australians living on defined benefits schemes experienced higher levels of security than those in accumulation schemes, he says.
“The recipients highly valued them and felt secure compared to those ‘gambling’ in the stock market.
“This situation of comfort supports the plan for people at retirement to have access to pooled lifetime income products that protect their income levels their entire lifespan.”
For many people approaching retirement, superannuation was introduced too late, with just 3 percent making compulsory contributions for half of their working life, retirement funding expert Josh Funder, chief executive of Household Capital, says.
“This means that more than half of Australian retirees now have less than $200,000, and that has to last more than 25 years,” Dr Funder says.
Australians have three or four times the amount of savings in their home relative to their super fund, he says.
Retirees often make two mistakes, he says. Either they under-fund their retirement by taking only the minimum draw-down, saving everything for the end and their wellbeing suffers, or they spend too much too soon and the back-end of their retirement suffers.
“Retirees can get it right by putting together a reasonable long-term plan, enabling them to draw on their full lifetime savings to meet all their needs – income, housing, contingency funding and aged care,” Dr Funder says.
Financial adviser Brendan Ryan agrees.
“When planning for retirement, it’s a case of putting in the work to make sure you plan the best you can, then checking in periodically to make adjustments as the situation changes,” Ryan, from Later Life Advice, says.
“And situations will definitely change.”
The key is getting organised early.
“Make sure you apply for everything you’re entitled to, and make sure you put in the time to carefully plan lifetime spending, and understand your options.
“It’s impossible to get plans that span 20, 30, 40 years exactly right from the start, but it’s worth checking to make a strong start and check in regularly to see what’s changed and how you’re tracking,” Ryan says.
Retirement spending often comes from a number of sources – investment earnings, savings, annuities, government payments, government concessions, some tax concessions and rebates, and potentially some borrowing – such as the Pension Loan Scheme, Ryan adds.
“It’s complicated to get the mix right and the irony is Australians in later life who are part of the system need expert advice the most, and can probably afford it the least,” he says.
The implications of mismanaging the drawdown of savings can be stressful at a vulnerable stage in life, Ryan says.
“It helps to have someone to work with that has a thorough understanding of the system that Australians in later life have to be a part of,” he says.
Meanwhile, National Seniors is keeping the pressure on for the federal government to bear some of the financial burden in retirement.
The responsibility to build your nest egg doesn’t stop with the individual – governments need to step up and provide better comprehensive income products for retirement, McCallum argues.
“The governments in the past 10 years have been making people feel insecure with constant budgetary changes,” he says.
“There’s changes in super, pension means testing and franking credit changes have also been proposed. It makes people feel insecure.
“The message we’re hearing and sending to the government is that these issues need to be settled and expectations stabilised so that retirees can make choices with greater certainty.”
Plan as well as you can and don’t take too many financial risks later in life, because at that point you can’t easily rebuild your finances, McCallum says.