The sad reason why Aussies are dying before spending their superannuation – here’s what’s changing
Australians are dying with hundreds of thousands of dollars in retirement because withdrawing their retirement savings is too complicated or scary.
A Treasury discussion paper published this week shows that retirees are holding on to their money because they don't know how to withdraw money for everyday living.
It also suggested that many pensioners were so worried about running out of super that they were only taking out the minimum amount allowed rather than considering other options.
“Some retirees may have a minimum withdrawal rate effectively chosen for them by their fund, and be unaware that they can even vary the size of their age pension,” the paper said.
“Minimum withdrawal rates are blanket settings that are not designed for, and do not lead to, optimal retirement income for all retirees.
“For many, at least withdrawing leads to a suboptimal income stream.”
Australians are dying with hundreds of thousands of dollars left in their pensions because tapping into retirement savings is either too complicated or too scary, government reports say (pictured is a stock photo)
Australians born since July 1964 can access their super once they turn 60.
Under current rules, they can apply to their super fund for a dedicated pension where their money remains invested but the pensioner receives regular payments.
This is especially important because the separate old-age pension paid by the government is only accessible from the age of 67, for those born since 1957.
The Treasury discussion paper – The Retirement Phase of Income – explored the idea of requiring all funds to offer a standardized allocated pension product to simplify the process.
The paper noted that while Australians were concerned about running out of money, 84 percent of super currently in a superannuation account could not manage the risk of running out of money.
“Retirees remain concerned that their savings are running out,” the report said.
'To manage this concern, retirees try to insure themselves by withdrawing the minimum possible amount of their pension – around half of all retirees withdraw at the minimum withdrawal rate, rather than considering alternative strategies or products to reduce this risk to master.'
Concerns about poorer quality of life in retirement are being raised two years after another Treasury document – Retirement Income Covenant – suggested Australians are dying having spent barely any retirement savings.
“Multiple studies have shown that retirees die with approximately 90 percent of the assets they had at retirement,” the report said.
'If there is no change in behavior, legacies from pension benefits are expected to increase.
“It is expected that by 2060, one in every three dollars paid out of the pension system will be part of a legacy.”
Men aged 60 to 64 had an average super balance of $211,996 in 2020-21, Australian Taxation Office figures show.
That means a male retiree with an average balance would leave $190,796 in his will if he didn't spend 90 percent of his super money.
A Treasury discussion paper released this week suggested Australian retirees were holding on to their money because they didn't know how to take out more money for everyday living (pictured are Australian banknotes)
A woman with an average balance of €158,806 would leave €142,925 in her will.
However, the figures are much higher when looking at the average pension balance and not the median.
The University of Melbourne's Household, Income and Labor Dynamics in Australia Survey estimates the average balance for men at retirement in 2021 at $476,744, meaning if 90 per cent remains unused, this amounts to $429,070.
The unused amount for women would be $260,349, based on an average balance of $289,277.
“The problem is that most retirees do not have access to the right products to help them maximize their livelihood throughout their lives,” the Treasury Department newspaper said.
The Association of Superannuation Funds of Australia suggested that 80 per cent of people aged 60 and over who died between 2014 and 2018 had no super provision at all for up to four years before their death.
But those who died with super tended to have higher savings, pushing up the average at death.
Those who died in their 60s had an average super balance of $635,608, falling to $429,432 for those who died in their 70s and to $375,096.
Treasurer Jim Chalmers (pictured) and his assistant minister Stephen Jones acknowledged this week that there is a pressing need to ensure retirees live longer, possibly into their 90s.
The average left behind by everyone over the age of 60 was $502,008.
Treasurer Jim Chalmers and his assistant minister Stephen Jones acknowledged this week that super is needed to help retirees live longer, possibly into their 90s.
“As Australians continue to live longer, healthier lives, many retirees are naturally concerned about outliving their savings,” they said.