16 May, 2019



The retirement savings shortfall

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While the United States has more millionaires than any other country in the world, Australia has the greatest median wealth per head, significantly ahead of the millionaire-rich US.

Figure one: Median wealth per adult

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Despite this, Australians also experience higher than average levels of relative poverty in retirement (figure two). This begs the question…how can a wealthy nation with broadly distributed wealth fail to deliver adequate retirement outcomes for so many of its retired citizens?


Figure two: % of 65 years plus experiencing relative poverty in retirement

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The answer? For many older Australians, the majority of their wealth is tied up in their family home. Although 80% of Australians own their own home at retirement and share a strong desire to remain at home throughout retirement, our national economic system has failed to provide adequate access to home equity wealth to improve retirement funding.


Improving retirement funding

To enjoy more good years of life in retirement, adequate resources are required. The Australian superannuation system was designed to supplement the pension with private savings from wage contributions. While the total superannuation savings required to fund an adequate lifestyle for baby boomers is contested, the introduction of superannuation contributions occurred only part-way through their careers at lower levels…a 3% annual contribution in 1987, followed by the Superannuation Guarantee increasing to 9% by 2002. This has led to a major shortfall in available assets to fund retirement.


If you truly want to become independent of the government, a self-funded retiree, live off superannuation, you’re going to have to put your own money in. The occupational superannuation is not going to do it.” – Peter Costello, 7.30 Report, 8 April 2019


Figure 3 shows the total average superannuation versus home equity for Australian households during the course of work and retirement. Within 10 years of retirement, superannuation savings are largely depleted. For Australian homeowners at retirement, the average household home equity is typically almost twice the value of superannuation. By the time retired cohorts have reached 75+ years of age, home equity savings have grown to over six times the value of superannuation. On average, Australians’ superannuation lasts about 10-15 years after which many Australians in retirement can expect a further 10-15 years of underfunded or inadequate retirement supported by the Age Pension.


Figure three: Average net assets per household

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Currently, retirees have no ability to transform the adequacy of their retirement resources to responsibly access their accumulated wealth throughout retirement. To do that, we need to consider ways to provide access to the largest pool of savings for most Australian retirees – their own home equity.


While superannuation alone is inadequate, most Australians have sufficient total resources to support high quality, in-home living throughout 25+ years of retirement. Traditionally, Australia’s retirement income policy has been framed as having three pillars: superannuation, non-superannuation savings and the age pension. Now is the time to include the fourth, and largest, pillar of retirement funding: home equity.


Retirement income adequacy

As detailed in figure four, 75% of older Australians face income inadequacy or uncertainty, undermining both confidence and wellbeing throughout retirement. The combination of inadequate and uncertain retirement funding leads to a gap in retirement incomes.


Figure four: Expectations of retirement income adequacy

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The outcome of uncertain and inadequate retirement funding is profound. Individual retirees face harder lives, diminished dignity and independence, reduced confidence, less active retirement, worse health outcomes and intentional under-consumption for their own wellbeing. Poorly funded retirement also has major implications for national social and economic objectives.


Looking forward

A key recent change in national policy on ageing has been the switch from viewing longevity as a “grey tsunami” and “budget threat” to celebrating an historically unprecedented new phase of life as part of “longevity and positive ageing”. To take advantage of 30 years of retirement, we must address social and economic policy.


First, in social policy, healthcare and community connectedness are essential to retirement outcomes. Retirees with greater incomes and more confidence in their ability to fund retirement will be more active, healthier, and happier. Second, in economic policy, appropriate housing (including aged care) and funding for retirement are essential.


Australian retirees intend to live long, healthy lives at home. Household Capital’s mission is to provide widely available solutions for retirement housing and funding by providing a universal finance function between housing and retirement. Australian retirees have saved more than one trillion dollars in home equity and should be able to draw on those savings to Live Well At Home.