Australians approaching retirement believe they are in a good place financially, with one in two now expecting their retirement savings to last longer than they do.
The majority of Australians over the age of 40 say they are ready for retirement, according to Investment Trends’ 2021 Retirement Income Report.
The report found that those in the pre-retirement phase of their lives expect their retirement savings will last an average of seven years beyond the end of their lives.
“For the first time in five years, one in two retirees expects their retirement savings will outlast their years in retirement,” says Investment Trends associate research director Kurt Mayell.
“As of September 2021, pre-retirees expect their savings to last on average 22 years, seven years longer than only a year ago.”
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Sixteen per cent of respondents claimed they were ‘well prepared’ financially for retirement, with another 45 per cent describing themselves as ‘somewhat prepared’.
The result is a change in attitude from previous years where retirees were more reserved about spending in retirement, for fear their money would run out before the end of their lives.
In the past, this has led to many Australian retirees living unnecessarily frugal lives in retirement. The federal government has been encouraging people to draw down fully on their superannuation before they die.
The government’s Retirement Income Review warns that by 2060 one in every three dollars paid out from the superannuation system will be an inheritance rather than retirement income.
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“Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement,” the report says.
“Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income.”
This tracks with the findings of a recent Productivity Commission (PC) report into the economic effects of large wealth transfers.
It found that by 2050, around $224 billion will be passed down in inheritances each year. This would represent a fourfold increase on the average inheritance of today, which is already double what it was in 2002.
Read: Nest eggs need a rethink, for the good of retirees and the nation
Accordingly, Investment Trends found that one in two Australians aged over 40 had inquired about estate planning over the past 12 months.
“With an improved retirement outlook, more Australians say they would eventually like to leave the balance of their super to their heirs, welcoming increased estate planning advice and content,” Mr Mayell says.
Of those intending to leave an inheritance, 80 per cent said the family home was the main asset they’d be passing on, with superannuation balances coming in second.
Pre-retirees believe they will need on average $4500 per month for a comfortable retirement, while they expect to receive $4100 (a 10 per cent gap, down from 37 per cent last year). The report notes that this gap between anticipated and ideal retirement income has significantly narrowed, demonstrating that retirees are feeling more comfortable with their levels of retirement savings.
If you’re a pre-retiree, are you feeling more optimistic about your estimated nest egg? Do you think $4500 a month will deliver a comfortable retirement? Why not share your thoughts in the comments section below?
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