Is the trend of running out of money in retirement increasing?

As a nation, we're pretty optimistic. We like to think things will turn out for the best, and if they don't, we usually have a back-up plan to see us through. While it's one of the traits I like most about Australian culture, optimism alone doesn't always cut it. 

When it comes to financing our retirements, our optimism is leading to us running out of money. 

A survey conducted by VicSuper suggests about 30 per cent of our older retirees aged 75 to 79 will outlive their retirement savings, rising to about 50 per cent for those who have based their savings on a defensive portfolio. But it's not only today's retirees who are facing a crisis – VicSuper's latest research shows that 54 per cent of Australia's pre-retirees (aged 55 and over) are financially unprepared for retirement (and only 8 per cent are completely financially prepared), meaning they're already slow off the blocks. Unless we begin to identify and address the root causes of the issue, the situation is unlikely to improve for the next generation. 

So why are more retirees running out of money in retirement? 

1. We are living longer

One of the main reasons we're running out of money is simply that we are living longer than ever before. 

We often look to our parents as a guide to how long we can expect to live, but this is no longer an accurate measurement. According to the World Health Organisation, a man aged 64 in Australia can expect to live to 85, while a woman of the same age can expect to live to 87. That puts us in the top five countries for life expectancy worldwide. 

While we're able to enjoy this longer life expectancy, the age at which most Australians retire has remained static since the 1950s, at 65 years. This means that we can expect to spend over 20 years of our lives in retirement, longer than any generation before us. 

2. We continue to be active later in life 

As well as living longer and spending more of our lives in retirement, the additional bonus of advances in medicine means we are more likely to remain physically and socially active longer into retirement than generations that have gone before us. 

According to an HSBC report, 45 per cent of us expect our social lives to improve during retirement. We want to be able to travel, pursue new hobbies, and take time to visit friends and family – all the things there is less time for while working. 

Our latest research* corroborates these findings: 62 per cent of pre-retirees felt that they would still be able to afford Australian holidays during retirement, and 40 per cent even said they expected to be able to afford overseas travel. This expectation that we will be able to maintain or even improve our quality of life in retirement means that retirement is becoming increasingly expensive. 

3. We're spending our savings 

These changing expectations about what modern retirement will look like are having a huge impact on the way retirees are using their savings. At present, the government mandates a minimum amount that retirees must draw down from their superannuation fund each year. 

While half of retirees live moderately on the minimum draw-down, HSBC's research shows that half of all retirees are drawing down more than the minimum amount from their super funds each year, dramatically reducing their pool of savings for their future. In fact, we Australians are so over-optimistic about our retirement incomes that we have the biggest savings shortfall of all 17 countries that took part in HSBC's survey. 

Running out of money in retirement will continue to be a problem for as long as we hold on to our "she'll be right" attitude to money. However, a number of super funds are looking at innovative ways to address the issue.

At VicSuper, we were the first public offer superannuation fund to market with guaranteed income accounts, which offer a guaranteed income during retirement for either a fixed period of time or for the rest of the member's life. Such products offer longer-term stability for retirees by providing secure, monthly payments to address retiree's needs. 

While super funds are looking into ways of making the system more sustainable, we all have individual responsibility to start planning for retirement sooner rather than later, researching how long we can expect to live and setting our expectations for our lifestyle during retirement. If we all keep an eye on the long game, there will be plenty to be optimistic about for our future. 

Michael Dundon 

Chief Executive Officer

As a nation, we're pretty optimistic. We like to think things will turn out for the best, and if they don't, we usually have a back-up plan to see us through. While it's one of the traits I like most about Australian culture, optimism alone doesn't always cut it. 

When it comes to financing our retirements, our optimism is leading to us running out of money. 

A survey conducted by VicSuper suggests about 30 per cent of our older retirees aged 75 to 79 will outlive their retirement savings, rising to about 50 per cent for those who have based their savings on a defensive portfolio. But it's not only today's retirees who are facing a crisis – VicSuper's latest research shows that 54 per cent of Australia's pre-retirees (aged 55 and over) are financially unprepared for retirement (and only 8 per cent are completely financially prepared), meaning they're already slow off the blocks. Unless we begin to identify and address the root causes of the issue, the situation is unlikely to improve for the next generation. 

So why are more retirees running out of money in retirement? 

1. We are living longer

One of the main reasons we're running out of money is simply that we are living longer than ever before. 

We often look to our parents as a guide to how long we can expect to live, but this is no longer an accurate measurement. According to the World Health Organisation, a man aged 64 in Australia can expect to live to 85, while a woman of the same age can expect to live to 87. That puts us in the top five countries for life expectancy worldwide. 

While we're able to enjoy this longer life expectancy, the age at which most Australians retire has remained static since the 1950s, at 65 years. This means that we can expect to spend over 20 years of our lives in retirement, longer than any generation before us. 

2. We continue to be active later in life 

As well as living longer and spending more of our lives in retirement, the additional bonus of advances in medicine means we are more likely to remain physically and socially active longer into retirement than generations that have gone before us. 

According to an HSBC report, 45 per cent of us expect our social lives to improve during retirement. We want to be able to travel, pursue new hobbies, and take time to visit friends and family – all the things there is less time for while working. 

Our latest research* corroborates these findings: 62 per cent of pre-retirees felt that they would still be able to afford Australian holidays during retirement, and 40 per cent even said they expected to be able to afford overseas travel. This expectation that we will be able to maintain or even improve our quality of life in retirement means that retirement is becoming increasingly expensive. 

3. We're spending our savings 

These changing expectations about what modern retirement will look like are having a huge impact on the way retirees are using their savings. At present, the government mandates a minimum amount that retirees must draw down from their superannuation fund each year. 

While half of retirees live moderately on the minimum draw-down, HSBC's research shows that half of all retirees are drawing down more than the minimum amount from their super funds each year, dramatically reducing their pool of savings for their future. In fact, we Australians are so over-optimistic about our retirement incomes that we have the biggest savings shortfall of all 17 countries that took part in HSBC's survey. 

Running out of money in retirement will continue to be a problem for as long as we hold on to our "she'll be right" attitude to money. However, a number of super funds are looking at innovative ways to address the issue.

At VicSuper, we were the first public offer superannuation fund to market with guaranteed income accounts, which offer a guaranteed income during retirement for either a fixed period of time or for the rest of the member's life. Such products offer longer-term stability for retirees by providing secure, monthly payments to address retiree's needs. 

While super funds are looking into ways of making the system more sustainable, we all have individual responsibility to start planning for retirement sooner rather than later, researching how long we can expect to live and setting our expectations for our lifestyle during retirement. If we all keep an eye on the long game, there will be plenty to be optimistic about for our future. 

Michael Dundon 

Chief Executive Officer