That’s the argument put forward by global actuarial firm Milliman in its latest Retirement Expectations and Spending Profiles report.
According to analysis of more than 300,000 retirees, more than half are spending less than the age pension, suggesting both mandatory and voluntary steps to increase super may not be enough to achieve better retirement lifestyles.
“The findings come as a particular surprise given the commonly used 50 per cent of median income poverty line typically captures many retirees,” Milliman commented.
“For example, the latest Australian Council of Social Service Poverty in Australia report estimated that 13.9 per cent of age pension recipients were living below the poverty line.
“The OECD’s Pensions at a Glance 2015 report found a more pronounced issue. It ranked Australia second lowest on social equity among 33 countries, with more than one-third of pensioners living below the poverty line.”
So why are these retirees spending less than the poverty line?
Milliman said super funds should consider what’s driving retirees’ frugality.
The firm suggested retirees could be self-insuring against longevity risk, or the risk that they will outlive their savings.
Alternatively, memories of recession eras in the early 1990s and 1970s could have “made some retirees more cautious now that they are no longer in the workforce”.
Adult children in need of help getting into the property market and a desire to ensure that children receive an inheritance were also touted.
Further, wishes to age in place, or age at the family home could also mean significant numbers of older Australians are choosing to leave the equity in their home untapped.
Noting that reverse mortgages “remain deeply unpopular”, Milliman said, “Government policies, such as excluding the family home from the age pension assets test and state-imposed stamp duties on property transactions, have also encouraged retirees to hold onto their home.
“However, the 2017-2018 budget proposed allowing people over 65 to sell their primary residence and roll up to $300,000 per person into super.”
Or has the financial services industry overestimated the cost of living in retirement?
“This is a confronting question for many people that goes to the heart of our assumptions about work, lifestyle and the nature of retirement,” Milliman said, arguing that this question also dives into what the Australian retirement experience is.
Pointing to the Household, Income and Labour Dynamics in Australia (HILDA) survey, which suggests that with age comes reduced risk of financial stress, and separate analysis of HILDA data that argues wellbeing either improves or remains steady during the transition to retirement, Milliman noted that the same research finds those forced to retire early due to job loss or ill health suffer significant declines in their wellbeing.
“It is difficult to draw a direct line between this research and the knowledge that half of all retirees are spending less than the age pension,” Milliman said.
Milliman called for funds to gather more information from their members to help them align their service with their members’ needs and experiences.
Concluding, the firm argued that this information is also part of the conversation about older Australians’ living standards.