It’s one of the mysteries of the modern retirement. Why aren’t more of the well-off retirees spending more on overseas holidays and on eating out when they can afford to do so?
Retirees spend surprisingly little in retirement. Even those who are well-off tend to preserve their private savings in retirement.
In an analysis of more than 300,000 Australian retirees’ spending, actuaries Milliman found more than half of retirees were spending less than the Age Pension each year.
While it is expected that those whose only income is the Age Pension would be spending less than the Age Pension, the results of the Milliman study show even those who are picking up a part Age Pension or entirely self funded are also conservative with their spending.
A 60-year-old male is expected to live a further 26.4 years and a 60-year-old women for 29.1 years, according to the government’s 2015 Intergenerational Report.
This may help account for the substantial proportion of retirees with account-based pensions who draw down the minimum legislated annual amount.
That starts at 4% under age 65 and rises in several steps with age until 95 when the minimum drawdown is 14%.
Jeff Gebler, a senior consultant at Milliman and author of the report, speculates though there is a safety net in the form of the Age Pension, which kicks in once private savings are depleted enough, most don’t want to use up all their super and rely on the pension alone.
In surveys conducted by Milliman, retirees express a strong interest in staying in the family home and handing the home onto the children with a low up-take of products like reverse mortgages that free up the equity they have in their homes.
The Milliman research largely agrees with that published by the CSIRO- Monash Superannuation Research Cluster in 2016.
Dr Andrew Reeson, an applied economist and a principal research scientist at the CSIRO and lead author of the research, will soon publish the results of a survey of older Australians, including retirees.
It shows more than half expressed a desire to spend super in a “precautionary” manner, ensuring it lasts their lifetime and they can cover unexpected expenses.
Fewer than one in twenty prioritised the need to have enough money left over to pass on as an inheritance.
It’s the longevity risk – fear of running out of money - that is the main driver of retirees becoming scrooges.
Covering unexpected expenses like future medical bills and residential aged care also has them worried and they’re reluctant to spend their superannuation too quickly.
Other studies have shown that retirees like to have access to a lump sum to pay down their mortgage, to carry out maintenance on the house or to buy new car.
Dr Reeson suspects a lot of retirees are over-estimating the likelihood of these expenses and the scale of the expenses.
He says it seems clear there are many retirees not enjoying the standard of living in retirement that they could afford because of their "perception" of the risks they face.
This article was originally published by the Sydney Morning Herald on 27 February 2018. It represents the views of the author only and does not necessarily reflect the views of AMP.
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