Australia's retirement expectations

Australians’ unrealistic retirement expectations

Hey! That's a great headline for clickbait! What's it referring to? That's much more mundane - the article from Firstlinks discusses a recent Vanguard?survey?of Australians about their attitudes to retirement.

Working age Australians expect, on average, that they'll like $100,000 p.a. to live on in retirement. What! Tell 'em they're dreaming! We'll have people storming the barricades when they realise their dreams aren't coming true. Superannuation has failed!

No! Calm down and carry on, it's not as bad as that. Australians who have already retired say they'd like to have an income of $68,000 (all values are in today's dollars). That's much more realistic.

There's also a desire by working Australians that they would like to retire earlier than the age at which the pension starts - 67. What effect would this have on their retirement income? Could a typical person meet their expectations - either the $68,000 or $100,000?

We've put a couple of case studies through our mProjections calculator, with the following results.

Consider a couple who are both aged 65, with a combined $500,000 in their superannuation, owning their home, and both still working earning $80,000 and $60,000. They plan on retiring at age 67 and use their superannuation income and drawdowns to give them a steady income until age 92 (past their life expectancy), when they'll revert to the age pension as their sole income. If they spend $72,000 p.a. then there is a 50% chance they'll be able to sustain that till age 92. Spending $64,000 p.a. gives them a 90% chance of sustaining this till 92. With this amount of assets they will be able to draw a part aged pension upon retirement, this is factored into these spending levels.

What if they plan on retiring now? They'll miss out on two years of super contributions and will have to draw down their super without benefit of the part aged pension for the two years till they reach 67. We'll assume they still want their income to last till age 92. If so, they can spend $64,000 p.a. with a 50% of that lasting till age 92. To have a 90% chance of reaching 92 they'd need to spend $57,000 p.a.

Retiring early has cost them about $8,000 p.a. But then, they have had two extra years of retirement.

What if they had $1,000,000 in their super fund instead of $500,000? Retiring at 67 will allow an income of $85,000 p.a. to be sustained with 50% chance. Spending $76,000 p.a. has a 90% chance of being sustained till age 92.

Retiring at age 95 reduces these income streams. Spending $79,000 p.a. has a 50% chance of being sustainable, and $71,000 has a 90% chance. So retiring early has a tradeoff of about $6,000 p.a. versus 2 more years of enjoying yourself more.

A more worrying comment from the report is "the cost of seeking financial advice remains a barrier for many Australians and is driving a growing advice gap that may be detrimental to their financial outcomes. Almost 2 in 3 working-age Australians have never engaged a financial adviser."

The cost of financial advice is why we developed our mProjections app. A subscription of $85 per annum allows a user to run any number of projections like the ones above, and many more. What's the effect of:

• taking a break from work;
• earning some part-time income while retired;
• downsizing the home;
• non-superannuation assets?

All these and more are available via the subscription. See the website?here, and get a 2-week free trial?here. (We don't take any of your credit card details for our free trial.)

If you want to chat or have a question then email [email protected]