As we get older we all want to make sure we’ll have enough superannuation to allow us a happy and comfortable retirement for as long as we are around. It’s an admirable goal, but are we being too cautious? There is a suggestion from some quarters that we are.
Aaron Minney, head of retirement income research at Challenger says people are often failing to spend enough of their pension as it was difficult to calculate life expectancy and they fear running out of money.
This has led to an estimated 30 per cent of superannuation in retirement being “wasted” by failing to spend enough. Of course the term “wasted” here could be challenged. Dependents who inherit what’s left of your super when you’re gone might not see it as a waste at all.
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But Mr Minney’s point is that many retirees are underspending their superannuation savings not for the sake of future beneficiaries but because they are fearful of it not lasting.
It’s not so much FOMO (fear of missing out) as FORO – a fear of running out.
According to Mr Minney, “People are only spending the minimum because they don’t know how much they can take, it’s too low, it should be six per cent rather than four per cent, and some funds are actively suggesting people take six per cent now.”
Mr Minney describes Australia’s superannuation system as a major success, and believes those who helped make it so deserve to reap the rewards.
“Many retirees cut back on their lifestyle rather than spending their savings. Hoarding the nest egg means they are missing out on some of what they could enjoy,” he says.
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While Mr Minney’s advice seems sensible, the take-up of his suggestion appears to be slow.
A quick Google search using the words “spend more of your super” brings up a page of results encouraging you to “boost”, “grow” and “add to” your super.
Indeed, advice around making more use of your own money in retirement is scant across the internet. This probably makes sense, given that your financial institution will reap greater rewards if you leave more of your money in its hands.
But if Mr Minney’s estimate that, by the time we die “around 25 to 30 percent” of our super savings won’t be used, is accurate, then perhaps it is time to reconsider our reticence when it comes to spending just a little bit more.
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The issue is perhaps not as significant for current retirees, many of whom only have relatively small amount balances, but that significance will increase as people who had been saving into super for most of their working life began to move into the ‘decumulation’ stage.
While neither Mr Minney nor others are advocating a reckless approach, there does appear to be more ‘wiggle room’ for spending in retirement than many realise.
That’s something to keep in mind the next time you’re wondering if you should treat yourself to a little retirement luxury.
Have you been a cautious spender in retirement? Do you worry about your super not lasting? Why not share your experience and thoughts in the comments section below?
It’s not that they are fearful of running out of money, it’s fear of not having enough to get into high-care should it be necessary. Had self-funded retirees not saved for their retirement they would get into high-care simply by surrendering part of their pension. Very unfair to self-funded retirees.