A global survey of people’s attitudes to retirement savings shows while Australians expect to spend 23 years in retirement, their money will run out after only just 10 years, leaving them on the age pension.
The funding gap, or shortfall, of 13 years is among the longest gaps of the 15 countries surveyed by HSBC for its Future of Retirement report. Mortgages and other debts are among the main reasons Australians say they are unable to save adequately for their retirements. The average savings gap among the 15 countries is seven years. Australia’s funding gap is the longest funding gap in Asia and the fourth-longest in the world.
More than 45 per cent of Australian pre-retirees told the survey they cannot afford to prepare adequately for retirement. They say they have more immediate financial commitments. Just over half of these said repayment on their mortgage and other debts is stopping from preparing adequately for retirement.
The results, although self-reported by survey respondents, are in-line with recent research. For example, Rice Warner’s latest Retirement Savings Gap research showed a gap of $727 billion. That at works out $67,000 per person less than the amount needed to fund just an adequate’ retirement, let alone a “comfortable” retirement. A survey on behalf of industry super fund REST, released last year, found a disconnect between what baby boomers expect their retirement to be like and what reality has in store.
It found 35 per cent of boomers described themselves as “completely unprepared” for retirement, 51 per cent as”somewhat prepared” and only 14 per cent as financially prepared. Another survey, also sponsored by REST, found one quarter of over-50s said they had less than $50,000 in super, with a further 12 per cent having $50,000 to $100,000 in super.
One reason for the low account balances is that the Australian super system, which is regarded as one of the best in the world, is still maturing. Compulsory super started only in 1992 at 3 per cent compared with 9.5 per cent now. Boomers, particularly the older boomer, have not had the benefit of compulsory super for their whole working lives as younger generations will. Just under half of Australian pre-retirees (46 per cent) told the HSBC survey they are not confident in their ability to be able to maintain a comfortable standard of living once they have stopped working.
The lack of confidence is across all income levels. A third of even relatively well-off pre-retirees, those with household income of more than $90,000 a year, said they are not confident that they will be able to maintain a comfortable retirement. Low wages growth is also stopping working Australians from making voluntary contributions to their super. More than half (55 per cent) of the 1000 working age Australians surveyed said their income is not keeping pace with the cost of living.
“When you consider wage growth in Australia has slowed to 2.6 per cent a year, the lowest rate of growth since 1998, it’s unsurprising Australians are struggling to afford retirement,” said Graham Heunis, head of retail banking and wealth management at HSBC Australia. Retirees around the world were also surveyed. Australian retirees told the survey they have done things differently before they retired to improve their standard of living in retirement.
For example, almost a third said they would have saved more and a similar proportion said they would have started saving at an earlier age.”Australians are in denial about retirement planning,” Mr Heunis said. Life is full of reasons for putting short-term spending before long-term planning, he said. They need to take action and start saving now, Mr Heunis said.