Retirees still need help to navigate spending in retirement
The latest report from National Seniors and Challenger highlighted the success of the super system in providing benefits for Australians in retirement. Thirty years of compulsory super is providing average households with enough financial resources to improve their lifestyle in retirement. The challenge that the report highlights is that people are unsure how to spend it safely. This leads to the potential situation where retirees don’t get to benefit from their lifetime of super savings.
What retirees need is a better understanding of what they can spend and some guidance on the best ways to do this. We have previously highlighted the advice gap created by the growing number of retirees at the same time as adviser numbers are falling. This report details how this gap is impacting current retirees.
Retirees can maximise their spending to get the most out of retirement by drawing on their capital through retirement. However, 25% of those in the NSA survey did not want to draw down any capital. Almost half wanted to spend some capital but also to keep it, and when combined with those who didn’t understand, only a small proportion of retirees expect to spend their capital down. This contrasts with the retirement income covenant which implies funds should help their members spend their capital to maximise their retirement income. They also need a good investment strategy.
The survey also highlights that retirees are not necessarily keeping their capital to leave to the next generation. The main reason, cited by over 80% of those wanting to maintain their capital was to have it available for health and care costs. The figure below provides the reason people wanted to maintain some capital (multiple responses were possible). Less than half want to maintain the capital for the next generation.
The retirement income review found that there was only a modest increase in medical costs that is offset by other expenditure reductions, so it is likely that many retirees will leave a larger than intended bequest.
Funds can help their members by providing better information for members about spending their income in retirement. There are solutions available that can provide income for members at older ages which can provide them with the confidence to spend while they are still, relatively, young. This would be a real benefit to members and enable them to enjoy their retirement. With lower cost ways to implement advice to members, and some potential reforms from the Quality of Advice Review, there is the potential to super funds to find a cost-effective way to help their members negotiate their retirement. This would enable them to spend confidently today and still spend the rest of their lives.