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Retirees Face Funding Shortfall - Sept 2016

By Robert Kirk

According to Roy Morgan 415,000 people are expected to retire over the next 12 months. From a younger person’s view this sounds like good news because it frees up jobs, but from an economic perspective it is a dire situation as dependence on government funding increases.

According to findings by Roy Morgan, expected retirees have a calculated net wealth position of $281,000. This is well below the Association of Superannuation Funds of Australia (AFSA) which estimate an individual would need $545,000, while a couple would need $640,000 for a “comfortable lifestyle”.

Given the very low interest rate environment and current global uncertainty, the amount required to fund retirement is likely to rise above these levels. As a result more retirees will place a greater reliance on government benefits.

Norman Morris, Industry Communications Director, Roy Morgan Research says:

“The average level of savings and superannuation for those intending to retire in the next 12 months is well below what is required to be able to lead what ASFA describes as a ‘comfortable lifestyle’ or with no reliance on the age pension ie. being ‘self-funded’. The low levels of retirement savings will put more pressure on government funding for some time yet unless there are changes to eligibility rules, taxation or superannuation regulations.

“Many intending retirees have a substantial proportion of their funds outside of superannuation, which may be due to not understanding the benefits, not qualifying or being unsure about superannuation with all its rule changes. There will be a major education role for government to make clear what the rules are particularly when the current proposed changes have been sorted out. Superannuation is a very long-term investment which presents a major challenge to engage young people, a task made even more difficult if there is uncertainty about what the rules will be regarding access to funds in 30 years or more.

“Intending retirees who own, or are paying off, their home, have a major potential source of retirement funding. However, they may be reluctant to use it as the home is generally regarded as being sacrosanct and as such not taken into account for retirement funding. Meanwhile, those intending retirees who rent are at a disadvantage as they do not have the tax-exempt status of owner occupiers and as such are likely to find retirement funding options more difficult.”

“As with all overviews, this analysis only skims the surface- Roy Morgan Research is now exploring the long tail of those ‘too poor’ to retire without Government support; and those who are simply choosing not to retire.”

Superannuation like property is a long term play which requires sound investment advice and planning. A number of property owners are equity rich but cash poor.

Some property investors see capital growth as the most important factor when planning for their retirement but capital growth without cashflow may not provide enough income to fund their lifestyle at retirement.

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