REST: Balance Your Retirement Needs Against Life Stage Needs

According to research released by REST Industry Super, older working Australians have big plans for their retirement, but the financial reality may not match their aspirations.

An annual white paper commissioned by REST has highlighted the ‘catch-22’ situation of many older workers that are approaching retirement. The paper captured the attitudes of just over 1,000 working Australians aged 50 or over toward their financial situation, plans and expectations as they set out on the road to retirement and found that despite older working Australians expecting to have a shortfall of funds in retirement, 72% of older working Australians with adult children are planning to help them financially, primarily by drawing down from their superannuation balances.

Ominously though, nearly a third of the survey respondents aged over 50 have a superannuation balance of less than $100,000 and half of the survey respondents believe they’ll need to rely solely on the Age Pension to fund their retirement. One-third of survey respondents expect to work longer than they would ideally like to in order to make their money last longer and one-third are relying on an inheritance to make retirement stack up.

Q: It is interesting that one third of survey respondents anticipate retiring later than they would ideally like to, in order to afford retirement. Has this percentage changed over time?

A: Actually, this figure has remained fairly stable. 35 per cent of respondents in last year’s survey confirmed they planned to put off retirement as they didn’t feel financially ready.

The major change that came through in this round of the survey was actually a drop in the number of older working Australians reliant on the Age Pension to fund their retirement. In 2014, 64% of respondents expected to  rely on the Age Pension to fund their retirement and in the latest round of our research only 37% thought they would rely solely or heavily on the Age Pension to fund their retirement.

This indicates older working Australians may be becoming more reliant on their superannuation and other sources of income in retirement, perhaps due to continued uncertainty about the future of the Australian pension system.

Q: There seems to be a significant reliance on inheritance to help fund retirement. With increasing life expectancy though, do you think this is a realistic expectation?

A: Relying on an inheritance to fund your retirement is an unrealistic expectation, and this was reflected in our research findings with four in five respondents indicating they couldn’t rely on an inheritance as their parents might have unexpected medical expenses later in life. For people who had received an inheritance the average windfall was $110,000, while those anticipating a future inheritance expect to receive on average around $250,000.

However, nine in ten of those who were expecting to receive an inheritance were expecting to put some, or all, of this inheritance towards funding their retirement.  I’d encourage individuals who are relying on an inheritance to fund their retirement to explore other options, as increasing life expectancies and unexpected medical expenses often dramatically reduce the size of an expected inheritance, if indeed they end up receiving anything at all.

Q: A significant proportion of survey respondents have financially helped or are intending to help their children in a number of ways. How can older workers balance their own retirement needs against the life stage needs of their children?

A: We can understand the desire to help set the children up financially, but unfortunately you can’t have your cake and share it too, and parents who dip in to their retirement savings now run the risk of becoming a financial burden to their children later in life.

Because of this, one of the best ways to balance your own retirement needs against the life stage needs of your children is to ensure you’ll have enough superannuation to ensure you’re not a burden on them later in life when they’re trying to raise children of their own.

Have a plan and know how long your retirement has to last before making decisions.

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