The easy, effort-free dream of a golden retirement: that’s what superannuation was supposed to deliver. The worrying reality is that more than half of Aussie Baby Boomers currently believe they’ll run out of money and need the aged pension, while many others will have to significantly scale back their lifestyle, according to data from RaboDirect’s 2014 Financial Health Barometer. It’s fair to say, a leaner future lies ahead for many.
Most older Australians consider staying healthy and active to be their primary retirement goal. Another good portion of retirees would like to travel – both overseas and around Australia – which requires a reasonably comfortable income.
For some, the plans are more modest: spending time with family; taking up a new hobby; doing volunteer work, or enjoying leisure pursuits. But a key goal is also getting by without being short of money, which appears less achievable for many.
The reality is that, although there has been a slight rise in overall optimism about super sufficiency over the past three years, this positive outlook is mainly prominent among younger generations. Baby Boomers are the most concerned about having adequate superannuation for their retirement. They’re nearly twice as likely as Gen Yers to predict they’ll run out of money. And their overall confidence has fallen.
Australians approaching retirement age are probably more realistic about the size of fund they’ll need compared to younger Australians. But while they have more in their super – since they have worked for longer – they’re expecting to only have about half the amount they need: $455,461 rather than $886,152.
Right now, the average Baby Boomer only has $257,664 in the pot. If poor health or job loss strikes, those without a plan B such as income insurance are going to be in dire straits.
Searching for solutions
So what can older Australians do to try and top up their retirement funds? Some are already making voluntary super contributions, either via salary sacrifice or after-tax contributions. But here’s a terrifying fact: most of those topping up are those who already believe their super will be sufficient. Only 17 per cent of Australians – of all ages – who believe their super will run out are making voluntary contributions.
This failure to save is a financial time bomb waiting to explode, particularly when coupled with the high numbers of Australians expecting to retire with a mortgage. A quarter of Australians (24%) don’t expect to have paid off their home by the time they leave the workforce.
The burden of home loans
Some intend to use superannuation or downsize other investments to pay off a mortgage. Others are planning to delay their retirement to repay. The Australian Government already plans to raise the retirement age for the standard pension to the age of 70 by 2035.
There has also been a huge increase in Baby Boomers planning to use superannuation to pay off their mortgage and an associated drop in those planning to downsize. Escalating property prices may be to blame for this, with retirement units becoming increasingly unaffordable.
Concern about retiring with a mortgage has also been rising over the past three years, though mainly among the younger generations.
One positive point is that most Australians – across all age groups – believe it’s their primary responsibility to ensure they have a financially comfortable retirement. Overall, only one quarter think they should rely on the Government. Women are in a far worse situation than men when it comes to their superannuation with less than half the savings of men.
This creates some hope that those in the most difficult financial situations will be prepared to take action, if given guidance. The challenge is getting older Australians to seek financial advice, as they are increasingly failing to do so.
Have you taken financial advice? And if not, what has stopped you?