Worried you’ll run out of super in retirement?

Australia’s life expectancy continues to rise which means you’re likely to spend more years in retirement living off your super savings or pension payments than your parents or grandparents. The big question then, is will you have enough to live on?

Research by life insurance company TAL found one of the top worries of Australians heading for retirement was whether they’d have enough money for unexpected events and for non-essential living expenses such as holidays.

The company ran a survey of 1,023 people who were either approaching retirement or already over 65 and no longer working.

TAL’s general manager of investments, retirement and operations, Ashton Jones, said one of the key findings from the survey was that: “All participants want to fund their retirement with their superannuation balance, however, these funds will not last their full retirement.”

Other research, by National Seniors Australia and investment management company Challenger, has highlighted the level of worry about financial security among older Australians.

National Seniors CEO, Professor John McCallum, said: “Australia has one of the best pension systems in the world, yet Australian retirees are still showing high levels of worry that they will outlive their savings.”

Canstar data also suggests many Australians could be likely to suffer from a shortfall in superannuation savings if they want to retire comfortably.

What happens if my super runs out?

While the Age Pension does provide a safety net for retirees, your income and assets can reduce the amount you may receive.

So if you’re worried about not having enough super to retire comfortably, there are a few things you can do to help boost your savings.

Rebecca Pritchard, a senior financial planner at Rising Tide Financial Services, told Canstar the situation may not be as bad as you fear once you sit down and work things out. She looks at a client’s current spending and super savings to see how that would pan out in retirement.

“So if they continue to contribute at their current rate, paying the current fees, investment options etc., what would that look like in retirement?” she said.

“And if they withdraw a retirement income to meet their current lifestyle, how long would their funds last? How does that compare to their life expectancy?

“This might give them comfort that they’re tracking better than expected, and perhaps only need some small tweaks, like a small increase in contributions, increasing their growth exposure, minimising fees etc.

“But if they’re significantly off the mark, that can give them the jolt required to make substantial changes and/or adjust their goals and expectations.”

You can use Canstar’s Superannuation & Retirement Planner Calculator to assess your situation. Use this as a guide only to estimate how much super you will have when you retire and any anticipated gap between your estimated super balance and how much super you may need for the lifestyle you want to lead in retirement.

How to avoid running out of super

One way to avoid running out of super in your retirement is to build up as much as you can in your super account while you’re still earning. There are other things you can do to help you save when you retire.

Here are a few tips to get you started, but remember it’s a good idea to seek some independent financial advice before taking any action.

1. Check your super fees

Make sure you aren’t paying too much in account fees for your super as this will eat away at your savings. The government’s Moneysmart website can help show how the fees on your super compares to others. If you have several super accounts you may be losing out by paying multiple sets of fees.

You might want to consider consolidating multiple super accounts into one if you can, but check first to make sure you don’t lose out on any benefits from the accounts you’re planning to close.

2. Consider your risk profile

It’s often recommended that you move to more conservative investments in your super as you age, but having all of your investments in fixed interest or cash could mean you struggle to keep up with inflation.

Consider having some shares or other growth assets to keep building your super. Talk to your super fund about your investment risk profile but remember that opting for more growth may expose you to more risk.

3. Set a budget

Having a realistic budget can really help to rein in excess spending while also making sure you have enough for the necessities. There are some simple tips you can consider to help you save money on groceries. You can also use Canstar’s Budget Planner Calculator to get a guide on your yearly cash flow.

4. Downsize your home

Selling your home and moving to a smaller property, particularly if you have kids and they’ve moved out (although that’s getting later in their life), could leave you with some spare money if you’ve paid off the mortgage. Smaller homes often cost less to run and maintain so that could also help you save.

If you’re aged 65 or older you may be able to make a one-off contribution to your super of up to $300,000 from the proceeds of downsizing your home, so long as you meet the criteria. That age limit is expected to drop to 60 from July 2022.

You could consider selling off other assets too, especially if you have less room in your new downsized home.

5. Add more to your super

There are several other ways you can add extra money to your super during your working life. For example, you could make salary-sacrifice contributions from your pre-tax earnings. You could also make additional voluntary contributions from other areas.

There are caps on how much extra you can add and you may have to pay extra tax if you exceed those caps. Depending on how much you earn and contribute, the government may even add extra contributions to your super.

AustralianSuper’s Group Executive, Membership and Brand, Rose Kerlin, told Canstar that any voluntary contributions are a great way to grow your super.

“One of the great things about voluntary contributions is that small amounts over a long period can make a real difference,” she said

“Salary sacrifice is also a great option to help boost your super. This is where you make an agreement with your employer to pay some of your salary straight into your super account instead of your bank account.

“This has a double benefit: you pay less tax and it reduces your taxable income.”

You can use Canstar’s Superannuation Contribution Calculator to get an estimate of what adding any extra contributions will do for your super balance.

6. Use government incentives

Even if you don’t qualify for the Age Pension, there are many other schemes that are designed to assist retirees with utilities, rates, transport and other necessities. The Department of Social Services has a list of benefits and payments available for seniors and Services Australia has a full list of Centrelink payments and services.

7. Keep working

Just because you’ve reached retirement age doesn’t mean you have to retire. Consider if it’s practical for you to keep working, even if you move to part-time. If you’re worried this might affect how much you get from the Age Pension, the Federal Government has a Work Bonus scheme that means the first $300 of any fortnightly income is not counted under the pension income test.

8. Consider your options

Once you can access your super there are several options available on what to do with the money.

An account-based pension can provide you with a regular income while you’re still investing most of your super and can help with budgeting and planning your retirement. You don’t have to use all the money in your super fund to set up an account based pension, but there are limits you need to be aware of.

You might consider an annuity as another way to get regular payments. Talk to your super fund or an independent financial adviser about what option may be right for you.

9. Enjoy your retirement

There are plenty of things you can do in retirement that don’t have to cost you that much. We’ve pulled together a list of things to do such as joining local clubs, revisiting lost hobbies, and even volunteering time to give back to your community.

Cover image source: CGN089/Shutterstock.com

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