Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 223

Understand the retirement income challenge

Recent research on over 5,500 senior Australians showed most are aware of their increasing longevity, but there were some surprising findings into retirement expectations. National Seniors Australia (NSA) and Challenger surveyed a broad representation of NSA members. Regular, constant income covering essential needs came out as the major requirement in retirement, but other results were less predictable.

Limited intentional bequests

While Treasury officials might be worried that older Australians are looking to build up a tax-free super nest egg and pass it all onto their kids, that is not the motivation for older Australians. Only 3% of respondents indicated that they intended to preserve all their capital for the next generation. These are probably wealthy older Australians who can afford to live off the income from their assets, rather than having to draw down the capital.

This doesn’t necessarily mean that senior Australians have turned stingy. Indeed, the split was roughly even between those leaning towards preserving capital and those looking to spend it down. Only 10% want to spend down everything. In practice, it seems that retirees are not spending it all (at least not yet).

So, what is driving the observed behaviour?

Understanding the implications of longevity

The survey highlighted that most retirees are aware of their increased longevity. 83% reported an awareness of a likely 6-year increase in life expectancy compared to their parents’ generation. 49% reported making financial plans for retirement and 47% have plans for medical and health expenses. These are all signs that Australian retirees are aware of the need to manage for longevity.

This awareness could also indicate why they don’t think they will be leaving money for the kids. They’re not sure that they will be able to afford it.

Living longer means that retirees will have to fund their spending for longer and it is probably more that the retirees are looking after themselves first. Only if they don’t need it will they leave something for the kids. Comments from individual respondents reflected the theme that kids are in a better place than current retirees, potentially due to the existence of superannuation (i.e. they already have their own retirement savings).

In terms of planning, making sure that they have income for the rest of their lives was a high priority, but it wasn’t what they were most concerned about.

Preference for regular income

Top billing in this year’s survey went to the need for regular income to meet essential needs. A previous survey in 2012 had ranked money for health costs as the top priority, but a broader focus, that includes other essential needs, topped the list this time.

The chart below indicates the key concerns that seniors have around their finances. While lowest ranked, many still consider it important to leave an estate, suggesting it is more about the capability, rather than the intention, that is likely to limit what the average Australian retiree will bequest.

Seeking financial advice

Another element of the report that might surprise was the high number (59%) who reported using a financial adviser. With around 160,000 households retiring every year, this suggests that there are around 100,000 pieces of advice (or information) from advisers about retirement. This might seem a little high, but it includes some limited advice (including general advice). Based on other surveys, it’s likely that less than half of them maintain an ongoing relationship.

With a growing number of baby boomers set to retire in the coming years, the demand for quality advice will only increase. With the increase in goals-based advice strategies, the report also gives some pointers about the key goals for retirees.

In summary, beyond the timing of the next overseas trip, the key goals are to generate a regular stream of income to meet essential spending and meet health and aged care costs later in life.

It would be hard to argue an adequate goals-based plan has been developed if it does not include solutions to meet each of these goals for a retiree.

 

Aaron Minney is Head of Retirement Income Research at Challenger Limited. This article is for general educational purposes and does not consider the specific circumstances of any individual.

4 Comments
Jack
November 23, 2017

If life expectancy is such that many people are now living until age 90, it is likely that their children will be in their late 50s or early 60s when they inherit.

In that circumstance it is debatable how much of a helping hand from their parent's inheritance these children will need at that age.

Graham Hand
November 23, 2017

Completely agree, Jack. I think that's why 'The Bank of Mum and Dad' is such a major factor in the property market. If you have the money now and plenty for the future, what's the point of your kids inheriting the money when they are 60, after they've struggled when they were 30 to 40 to pay off the mortgage on a modest home while bringing up a family and holding down two jobs. Then the kids leave home and they don't need the money. Better, if possible, to give a chunk to them at age 30 and let your extended family enjoy a better quality of home. I'm not saying you make life easy for them, but $500,000 buys nothing in Sydney.

Aaron Minney
October 19, 2017

Hi Ashley
That was covered by the question in the report which is available from the National Seniors Australia website (https://nationalseniors.com.au/be-informed/research/publications/seniors-more-savvy-about-retirement-income).
The responses to the question split down the middle between spending most/ all or preserving some/ all (51/49).
An inheritance was also the lowest ranked priority with 23% viewing it at very important to leave something to the next generation.
While it is important to many (certainly not all), there was a strong suggestion that they want to spend their money on themselves first, and the estate was a residual rather than an explicit objective.

Ashley
October 18, 2017

I see that only 3% of respondents indicated that they intended to preserve all their capital for the next generation, but what if the question were: “Do you intend to preserve PART, or a substantial part, for the next generation?" You might get a different story.

 

Leave a Comment:

RELATED ARTICLES

It's not a shock that retirement is different

Time to build a super system fit for retirement

Summer Series, Guest Editor, Jeremy Cooper

banner

Most viewed in recent weeks

Australian stocks will crush housing over the next decade, one year on

Last year, I wrote an article suggesting returns from ASX stocks would trample those from housing over the next decade. One year later, this is an update on how that forecast is going and what's changed since.

What to expect from the Australian property market in 2025

The housing market was subdued in 2024, and pessimism abounds as we start the new year. 2025 is likely to be a tale of two halves, with interest rate cuts fuelling a resurgence in buyer demand in the second half of the year.

Howard Marks warns of market froth

The renowned investor has penned his first investor letter for 2025 and it’s a ripper. He runs through what bubbles are, which ones he’s experienced, and whether today’s markets qualify as the third major bubble of this century.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

9 lessons from 2024

Key lessons include expensive stocks can always get more expensive, Bitcoin is our tulip mania, follow the smart money, the young are coming with pitchforks on housing, and the importance of staying invested.

The 20 most popular articles of 2024

Check out the most-read Firstlinks articles from 2024. From '16 ASX stocks to buy and hold forever', to 'The best strategy to build income for life', and 'Where baby boomer wealth will end up', there's something for all.

Latest Updates

Investment strategies

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

Shares

The case for and against US stock market exceptionalism

The outlook for equities in 2025 has been dominated by one question: will the US market's supremacy continue? Whichever side of the debate you sit on, you should challenge yourself by considering the alternative.

Taxation

Negative gearing: is it a tax concession?

Negative gearing allows investors to deduct rental property expenses, including interest, from taxable income, but its tax concession status is debatable. The real issue lies in the favorable tax treatment of capital gains. 

Investing

How can you not be bullish the US?

Trump's election has turbocharged US equities, but can that outperformance continue? Expensive valuations, rising bond yields, and a potential narrowing of EPS growth versus the rest of the world, are risks.

Planning

Navigating broken relationships and untangling assets

Untangling assets after a broken relationship can be daunting. But approaching the situation fully informed, in good health and with open communication can make the process more manageable and less costly.

Beware the bond vigilantes in Australia

Unlike their peers in the US and UK, policy makers in Australia haven't faced a bond market rebellion in recent times. This could change if current levels of issuance at the state and territory level continue.

Retirement

What you need to know about retirement village contracts

Retirement village contracts often require significant upfront payments, with residents losing control over their money. While they may offer a '100% share in capital gain', it's important to look at the numbers before committing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.