Poverty awaits in retirement

The 24th AMP.NATSEM Income and Wealth Report, Don’t stop thinking about tomorrow, shows that Australians are not saving enough to afford a comfortable retirement yet they are working less and spending more years in retirement than ever before.

Australians now expect to spend around 20 years in retirement after age 65. In 1909 only around half of all Australians lived to age 65.

The report considers how realistic present retirement expectations are given levels of retirement savings. It considers the impact that increasing future superannuation contributions would have and whether increased superannuation will rescue baby boomer women from the poverty that appears likely to await many of them.

To address the critical issue of adequate retirement funding the report considers the benefit of increasing the Superannuation Guarantee (SG) from 9% to 12%. In 30 years time, the superannuation balances of men are projected to increase by 25%.

For women aged 45 to 54, the projected increase is 7%, for women aged 55 to 64 it will be 22% and for women aged 65 and over the estimated increase is 30%.

Based on NATSEM simulations, increasing the SG to 12% will increase Australia’s retirement savings substantially and reduce the Age Pension outlay by 2.3%. In 1909 only 23,000 people received the Age Pension. Today 2.3 million are on the Age Pension or 77% of people aged over 65.

“Australians have very high retirement expectations but we are not saving enough to even afford a comfortable retirement let alone one that meets our expectations,” said AMP financial services managing director, Craig Meller.

“Adequate retirement funding is a critical issue that needs to be managed and increasing the SG to 12% would significantly lift the adequacy of future retirement savings.

“Australia is a wealthy nation yet our personal savings, including superannuation, are still reasonably low. By increasing the SG to 12% the average superannuation balance could increase by one-quarter.

NATSEM author and University of Canberra Associate Professor, Dr Simon Kelly, said for women, the time out of the labour force for childbirth and child-raising has a significant impact on their personal savings and superannuation.

“We found a significant gender gap in personal savings and superannuation for women. Women have sixth-tenths the personal savings of men and only have half the super of their male counterparts,” Dr Kelly said.

“The baby boomers have not saved enough for their retirement. There is a significant gap between their retirement expectations and their personal savings.

“Baby boomer women are particularly behind their male counterparts. Men aged 55 to 64 have on average $130,900 in superannuation, while women of the same age have less than half that amount, an average of $60,700,” Dr Kelly concluded.