Running Out Of Super In Retirement

How common is it to run out of super in retirement?

It’s a common misconception that all retirees live a never-ending holiday, but the reality is many older Australians have financial concerns about their retirement.

For some, it might be the fear of having to rely solely on the Age Pension later in life, that leads them to preserve as much of their retirement money as possible, by only drawing on the minimum required amount from their account-based pension.

Research from the Association of Superannuation Funds of Australia (ASFA)¹ shows that the proportion of retirees with super drops with age, as they withdraw all their super before passing away. The research also showed more than 90% of those aged over 80 had no super in the four years before they passed away. For women, the impact was even greater. Only 15% of females aged over 60 passed away with any super savings, compared to 25% of men.

What are the risks of running out of money in retirement?

As you’re probably used to receiving regular pay cheques throughout your working life, you might not have thought about the risks you could face in retirement. Here are some of the common ones.

Longevity risk – outliving your retirement money could mean becoming fully dependent on the Age Pension.
Market risk – market fluctuations that happen during your retirement may affect the value of your super investments
Inflation risk – inflation may impact overly conservative investments, such as cash, as your retirement savings aren’t growing in line with the rising cost of living which may affect your income

There are also pre-retirement factors that could increase the risk of depleting your retirement savings.

Retiring too early
Underestimating your retirement living costs
Not contributing enough while working, or spending more before you retire
Unexpected events, such as losing your job, injury or illness
Failing to account for aged care and/or healthcare costs

What can you do to help avoiding running out of retirement savings?

When starting this new chapter in your life, some considered planning could go a long way to helping avoid financial issues that will be harder to fix later on. Fortunately, there are a few things you could do to reduce the risk of wiping out your nest egg after retiring.

If you’re already retired

Review your budget – Remember, you only need to take out the minimum drawdown amount from your account-based pension, unless you need more to cover expenses and other needs.
Make the most of your Age Pension – If you’re not already receiving the Age Pension, check your eligibility for this benefit. As a bonus, the Age Pension comes with the Pensioner Concession Card, which offers cheaper health care, medicines and other discounts and support. Even if you aren’t eligible, you might be able to qualify for the Commonwealth Seniors Health Card. Also, check if you qualify for any concession cards offered by your state or territory, as they may provide some useful discounts.
Other strategies - There may be other strategies to optimise your Age Pension payment or to otherwise help reduce the risk of running out of retirement savings. It may be worthwhile speaking with a licensed financial adviser to discuss your options.

If you’re still working

Review your current super investment option – ask yourself if you’re in an investment option that’s right for you in the long-term.
Make extra contributions – If you can afford to, you could consider topping up your super while you’re still receiving an income, either via salary sacrificing or after-tax contributions*. There are limits or ‘caps’ on the amount of after-tax contributions you can make each financial year.
Set up a transition to retirement (TTR) strategy – Reached your preservation age and still working? You can use TTR to grow your super through salary sacrificing*. Note that TTR strategies can be complex, so it makes sense to speak to a Rest Adviser for professional advice.
Review your insurance cover – If you have any insurance cover, to make sure you aren’t paying too much in insurance premiums, check your level of cover regularly.
Plan your retirement – It could pay off to start thinking about your retirement three to five years before you intend to stop working. You may also want to review your retirement plans regularly, especially if you anticipate lifestyle changes.

1 ‘Superannuation balances prior to death: Superannuation balances of older Australians’, (March, 2021) The Association of Superannuation Funds of Australia (ASFA)

* Preservation rules prevent a person from accessing their super until they meet a condition of release (i.e. reach your preservation age and retire). It’s important to remember that you should consider your circumstances and objectives before adding to your super. If you have any questions, we recommend you seek advice from a licensed financial adviser.