Dying rich. Is it part of the plan?

Retirement adequacy. Underfunded retirees. Savings shortfall. We hear a lot about how we’re not saving enough for our retirement, but new research shows retirees using an allocated pension could die with more in super than when they retired. Is it part of a plan to leave a solid estate, or does behavioural science provide the answer?  

Throughout their working lives, older Australians have been encouraged to grow their superannuation pots in order to fund a rewarding retirement. And research by the CSIRO found retirees with super savings topping $100,000, typically tend to invest their nest egg in an account-based pension.

However, the research also noted that among these superannuants, most stick close to the minimum allowable drawdown. Only one in four withdraw more than twice the aged-based minimum.

In tandem with reasonable investment returns, this has meant many retirees using an account-based pension have seen their retirement savings grow – rather than diminish, in recent years. According to the study, this continued approach could see many older Australians pass away with substantial amounts of their nest egg unspent.

Behavioural science can hold the key

It is easy to assume frugality lies at the heart of the matter. Old habits die hard, and many of today’s retirees were raised in a culture of spending on needs, while thinking long and hard before spending on wants. Moreover, after years of looking upon super as a form of long term savings it can be hard to make the psychological turnaround and start embracing super as a tool for spending.

Nevertheless, an element of behavioural science also comes into play. Given an overwhelming choice about how much money to drawdown in an allocated pension each year, it can simply be easier for retirees to select the minimum withdrawal – and shape their lifestyle to suit this level of income.

Scope for industry action

Clearly, there is a role for the funds management industry to play here. Large balances invested in allocated pensions over the long term are undoubtedly a healthy source of fee income. But there is scope for retirees to be better guided on how to best use their super savings – especially if seniors are living a leaner than necessary lifestyle.

Figures from the 2015 Global Age Watch Index show 33.4% of our over-60s live in poverty. This provides evidence that at least retirees need support determining how to spread their super savings across various financial “buckets” that may include living the retirement dream today while still having sufficient funds for future health care needs including aged care.

Negotiating the fiscal aspect of retirement is not easy. But neither is living a restrictive lifestyle because of unnecessary concerns about how long your money will last.