Australians are dying with hundreds of thousands of dollars left in superannuation because withdrawing their retirement savings is either too complicated or scary.
A Treasury discussion paper released this week suggests retirees are keeping their money in super because they don’t know how to withdraw funds for everyday living.
It also suggested many retirees were so worried about running out of super they only took out the minimum allowed instead of considering other options.
‘Some retirees may have minimum drawdown rates effectively chosen for them by their fund and are unaware they can even vary the rate of their superannuation pension,’ the paper said.
‘Minimum drawdown rates are generic settings which are not designed for, and do not lead to, an optimal retirement income for all retirees.
‘For many, withdrawing at the minimum leads to a sub-optimal income stream.’
Australians are dying with hundreds of thousands of dollars still left in their superannuation because drawing down on retirement savings is either too complicated or scary, government reports say (pictured is a stock image)
Australians born since July 1964 can access their super once they turn 60.
Under current rules, they can apply to their super fund for an allocated pension where their money stays invested but the retiree receives regular payments.
This is particularly important given the separate aged pension paid by the government can only be accessed 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 standardised allocated pension product to simplify the process.
The paper noted that while Australians were worried about running out of money, 84 per cent of super now in a pension account didn’t manage the risk of funds running out.
‘Retirees remain worried about running out of savings,’ it said.
‘To manage this concern, retirees seek to self-insure by withdrawing the minimum amount possible from their superannuation – around half of all retirees withdraw at the minimum drawdown rate, rather than considering alternative strategies or products to manage this risk.’
Concerns about a poorer quality of life in retirement are being raised two years after another Treasury paper – Retirement Income Covenant – suggested Australians were dying after barely spending any retirement savings.
‘Multiple studies have shown that retirees die with around 90 per cent of the assets they had at retirement,’ it said.
‘Without a change in behaviour, it is expected that bequests from superannuation will grow.
‘By 2060, it is projected that one in every three dollars paid out of the superannuation system will be a part of a bequest.’
Men aged 60 to 64 had a median super balance of $211,996 in 2020-21, Australian Taxation Office figures show.
That means a male retirees with a median balance would be leaving $190,796 in their will, if they left 90 per cent of their super unspent.
A Treasury discussion paper released this week suggested Australian retirees were keeping their money in super because they didn’t know how to withdraw more money for everyday living (pictured are Australian banknotes)
A woman with a median balance of $158,806 would be leaving $142,925 in their will.
However, the figures are much higher when the average superannuation balance is considered rather than the median.
The University of Melbourne’s Household, Income and Labour Dynamics in Australia Survey put the average balance for men at retirement at $476,744 in 2021, so leaving 90 per cent unspent would amount to $429,070.
The unspent amount for women would be $260,349 based on an average balance of $289,277.
‘The problem is most retirees do not have access to the appropriate products to help them maximise their super over their lifetime,’ the Treasury paper said.
The Association of Superannuation Funds of Australia suggested 80 per cent of people aged 60 and over who died from 2014 to 2018 had no super at all up to four years before their death.
But those who died with super typically had higher savings, pushing up the average at death.
Those who died in their sixties had an average super balance of $635,608, falling to $429,432 for those who died in their seventies and to $375,096.
Treasurer Jim Chalmers (pictured) and his assistant minister Stephen Jones this week acknowledged super needed to geared towards retirees living longer, potentially into their nineties
The average left by everyone dying over the age of 60 was $502,008.
Treasurer Jim Chalmers and his assistant minister Stephen Jones this week acknowledged super needed to be geared towards retirees living longer, potentially into their nineties.
‘With Australians increasingly living longer, healthier lives, many retirees are naturally concerned about outliving their savings,’ they said.