Retirement plans fail to come to fruition

A NEW survey has found that most Australians are failing to save enough to achieve their own financial goals in retirement.

ANOP Research’s Rod Cameron said most baby boomers think they will be able to afford their current lifestyle after retirement.

“The truth is that there is a marked difference between the perceptions that many people now have about the rosy prospect of retirement and the harsh reality of the financial future that actually awaits them,” he said.

The survey, for the Association of Superannuation Funds of Australia (ASFA), found some positive trends in terms of people being more aware of the impact of an ageing pop-ulation.

For instance, only 29 per cent of people expect to receive a government pension, down from 51 per cent when similar research was undertaken in 1989.

And 63 per cent of people feel they are personally well prepared financially for retirement, up from 52 per cent in the earlier study.

However, this self-perception was not matched by the reality of saving activity.

The survey asked people how much they would need each year (in today’s dollars) for an adequate lifestyle in retirement.

Nearly half said they would need $40,000 or more, while 88 per cent would need at least $20,000.

What are people doing to reach this goal? The most important forms of retirement savings were compulsory super (32 per cent) and home ownership (23 per cent).

Other forms included property investment (13 per cent), voluntary super (12 per cent), savings accounts (5 per cent) and shares (2 per cent).

The reality is that compulsory super will not be sufficient for most people to reach their retirement goal. ASFA has calculated that a worker on average income saving 9 per cent for 30 years would only get around $19,000 per year in retirement.

This calculation actually overstates the prospects of many people in their 40s or older, since they have not received super for all of their working lives, or at least not at the 9 per cent level.

Conversely, people staying in the workforce for longer than 30 years would achieve higher retirement savings.

A person saving 9 per cent of average income for 40 years would get around $24,000.

However, many people will not work full time for 40 years. The survey found that most people plan to retire at the age of 58. And, prior to that time, they may be away from work because of tertiary study, extended holidays, illness or unemployment.

Home ownership also fails to meet the retirement goals of most people.

While 93 per cent plan to own their home when they retire, only 18 per cent plan to sell their home.

“Very few appreciate that, to realise home ownership as an income providing asset, the home will have to be sold,” Mr Cameron said.

“The consistency of our findings points very clearly to an undeniable implication – the large majority will find their retirement income inadequate or less than expected.”

Mr Cameron calculated that one third of people are deluding themselves. They think they will attain their retirement goals but, in reality, will fail.

A further 38 per cent already have acknowledged that they are unlikely to achieve their retirement goal.

This leaves just 29 per cent of people who can look forward to achieving their financial goals for retirement.