Retirement
Retirees could be spending too little, too early
The retirement sector may have miscalculated retirees’ spending habits, leading many Aussies to live unnecessarily frugal retirements, a retirement consultancy has said.
Retirees could be spending too little, too early
The retirement sector may have miscalculated retirees’ spending habits, leading many Aussies to live unnecessarily frugal retirements, a retirement consultancy has said.
Retirees’ spending tends to fall by 36.7 per cent as they move from their peak spending years, 65-69, into their years beyond 85, Milliman’s latest analysis has found.
The median retired couple will see a “relatively stable” drop-off in spending in their early years of retirement, with a decline of 6-8 per cent every four years. However, once these couples reach 80, spending falls off “dramatically”.
Given that many pension products are linked to a rising consumer price index (CPI), and a widespread industry belief that retirement income should be at least 70 per cent of the retirees’ working salary, Milliman warned that retirees are saving money for future years when they won’t need it.
The Milliman Retirement Expectations and Spendings Profiles (ESP) analysis found retirees’ spending on food declines steeply as they age, while health spending increases until they hit 80, after which it falls again.
Travel and leisure expenditure, as with all discretionary spending, falls with age.
It also found the top percentile of retirees by wealth spend below the age pension after their 85th birthday, leading researchers to suggest spending isn’t inextricably tied with income.
“The faster-than-expected drop-off in spending casts doubt on some common rules of thumb, such as aiming to save enough super to replace a set percentage of pre-retirement income and suggests a more nuanced approach,” Milliman said.
The Mercer Global Pension Index uses 70 per cent as the replacement target to measure the adequacy of systems worldwide.
However, while useful as a diagnostic tool, the 70 per cent benchmark fails to reflect the lived experiences of retirees, Milliman said.
“At worst, it could mislead retirees who then under-spend during the early years of retirement when they are most active. We know this is an issue for many retirees, who opt to take their super as an allocated pension and then draw down the minimum income.
“Financial plans and products should reflect these expenditure changes over time as well as the greater risks (such as market downturns) and uncertainties (such as health events) that retirees face compared to the broader population.”
Retirement Planning
Retirement time bomb requires complex thinking
The majority of Australia’s super assets now sit in the hands of retirees and pre-retirees, but many require more nuanced investment strategies to achieve the lifestyle they want in retirement, a ne...Read more
Retirement Planning
Why some Millennials are struggling to save for retirement
Millennials are struggling to save for retirement as they face challenges that are different from other generations. What are these reasons? ...Read more
Retirement Planning
Retirement Income Review cornerstone ‘not for everyone’
Despite being the cornerstone of the Retirement Income Review, an expert has highlighted that downsizing and withdrawing equity from a property might not be the solution for all older Australians. ...Read more
Retirement Planning
Effective tips that can help Millennials retire faster
Millennials have changed the cultural and societal landscapes of the world. This is unsurprising, given the fact that they are the best educated and most diverse generation in history. ...Read more
Retirement Planning
What you need to know to get ahead financially
Australians looking to get ahead are being advised to analyse their financial situation, set financial goals and reduce debt whenever possible. ...Read more
Retirement Planning
How to adjust your wealth strategy during COVID
Investors are being urged to be conservative about spending, reduce debt and be careful of assets that are supported by government spending, as they look to adjust their wealth strategies during the f...Read more
Retirement Planning
Should older Australians downsize their property?
Older Australians face the dilemma of not being confident about their retirement outcomes, but are among the wealthiest retirees in the world due to a large proportion of their wealth being tied up i...Read more
Retirement Planning
Self-funded retirees ‘hung out to dry’ by 2020 budget
The Association of Independent Retirees has slammed last night’s federal budget release, accusing the government of overlooking older Australians in its post-COVID-19 recovery plans. ...Read more
Retirement Planning
Retirement time bomb requires complex thinking
The majority of Australia’s super assets now sit in the hands of retirees and pre-retirees, but many require more nuanced investment strategies to achieve the lifestyle they want in retirement, a ne...Read more
Retirement Planning
Why some Millennials are struggling to save for retirement
Millennials are struggling to save for retirement as they face challenges that are different from other generations. What are these reasons? ...Read more
Retirement Planning
Retirement Income Review cornerstone ‘not for everyone’
Despite being the cornerstone of the Retirement Income Review, an expert has highlighted that downsizing and withdrawing equity from a property might not be the solution for all older Australians. ...Read more
Retirement Planning
Effective tips that can help Millennials retire faster
Millennials have changed the cultural and societal landscapes of the world. This is unsurprising, given the fact that they are the best educated and most diverse generation in history. ...Read more
Retirement Planning
What you need to know to get ahead financially
Australians looking to get ahead are being advised to analyse their financial situation, set financial goals and reduce debt whenever possible. ...Read more
Retirement Planning
How to adjust your wealth strategy during COVID
Investors are being urged to be conservative about spending, reduce debt and be careful of assets that are supported by government spending, as they look to adjust their wealth strategies during the f...Read more
Retirement Planning
Should older Australians downsize their property?
Older Australians face the dilemma of not being confident about their retirement outcomes, but are among the wealthiest retirees in the world due to a large proportion of their wealth being tied up i...Read more
Retirement Planning
Self-funded retirees ‘hung out to dry’ by 2020 budget
The Association of Independent Retirees has slammed last night’s federal budget release, accusing the government of overlooking older Australians in its post-COVID-19 recovery plans. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
