The CommBank Retire Ready Index, launched today, found the average single Australian who receives the Age Pension is expected to reach personal retirement savings equivalent to 61 per cent of what they need above the Age Pension for a comfortable retirement1. However, without the Age Pension the average single Australian is expected to be just 46 per cent retire ready.
Couples are better off than singles according to the new Index. After receiving the Age Pension, couples with similar income levels2 are expected to achieve almost complete retirement adequacy, reaching retirement savings equivalent to 98 per cent of their comfortable retirement needs. On the other hand, without the Age Pension, couples are expected to be just 60 per cent retire ready.
Nicolette Rubinsztein, General Manager Retirement, Commonwealth Bank, said, “The Age Pension acts as a buffer and significantly boosts retirement savings, but clearly the results show that single Australians are not retiring with adequate levels of retirement savings to achieve a comfortable level of retirement.
“Couples make up 71 per cent of Australia’s population aged between 65 - 743, so it is pleasing that certain couples are almost reaching the Australian Superannuation funds of Australia (ASFA) March quarter 2015 standard for a comfortable lifestyle of $58,444 per annum, compared to the average single Australian who is expected to reach just $37,000 per annum – a significant shortfall from the ASFA comfortable standard of retirement of $42,569 per annum,” Ms Rubinsztein said.
The Index shows that single females are 30 per cent less retire ready than men. After receiving the Age Pension, the average single female is expected to reach personal retirement savings equivalent to 47 per cent of her comfortable retirement needs above the age pension or just $35,000 per annum, compared to the average single male who will retire with retirement savings equivalent to 78 per cent of his comfortable retirement needs above the Age Pension or $39,000 per annum.
“The gap is higher for women because, on average, they have a longer life expectancy and therefore need to hold assets for longer to maintain a comfortable level of retirement. Women can also have lower retirement savings due to career breaks during their child bearing years and lower income levels over their working lives. These factors contribute to women being worse off than men in terms of saving for their retirement needs,” Ms Rubinsztein said.
Worryingly, the Index found that Australians on the cusp of retirement between ages 60-64 are the least likely to be retire ready. After receiving the Age Pension, single females are expected to reach retirement assets equivalent of just 36 per cent of their comfortable retirement needs above the Age Pension or $32,000 per annum, while single males are expected to retire with retirement savings equivalent to 62 per cent of their comfortable retirement needs above the Age Pension or $37,000 per annum.
Couples between the ages of 60-64 who receive the Age Pension are better off than singles but are also the least retire ready compared to other age groups, only attaining retirement savings equivalent to 84 per cent of their comfortable retirement needs above the Age Pension or $56,000 per annum, assuming they are on similar income levels.
“The older age groups have suffered from the fact that they haven’t enjoyed Superannuation Guarantee contributions over their working lifetimes and they have had less time to achieve adequate retirement savings. Recent research4 found almost three quarters of older workers across Australia are willing to stay in the workforce for longer and 61 per cent cited financial security as the major reason older workers continue to keep working.
“It is imperative that people at all age demographics gain an understanding of the level of retirement savings they will need today to be able to reach a comfortable level of retirement income to avoid a significant shortfall.
“For example, a single male earning the average Australian5 wage between $74,000 and $88,800 and between the ages of 40-44 needed savings of $165,000 as at 30 June 2014 to be on track to achieve the ASFA comfortable standard of living. A single female earning in the same income bracket and in the same age group needed to have savings of $220,000 – significantly more because females, on average, live longer,” Ms Rubinsztein said.
To help Australians understand the required savings for a comfortable retirement, the following tables outline required savings by age and income for single males and females against the ASFA comfortable retirement levels.
1 The Australian Superannuation funds of Australian (ASFA) comfortable retirement standard as at March Quarter 2015 of income: single $42,569 and couple $58,444. A Comfortable lifestyle enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.
2 When calculating adequacy for couples, Rice Warner have assumed for simplicity that couples consist of people within the same income and age cohort. In reality, there is likely to be a wider cohort distribution for couples.
3 Australian Institute of Health and Welfare, Older Australians at a Glance, 4th Edition
5 The average full-time male salary (excluding overtime) in Australia is $82,550 per annum (Seasonally adjusted wages – Bureau of Statistics.)
About the CommBank Retire Ready Index
The CommBank Retire Ready Index was developed by Rice Warner and is based on the data of more than 12 million Australian superannuation accounts as at 30 June 2014. The Index is a measure of the percentage of assets Australians are likely to have at retirement relative to their comfortable retirement needs. Adequacy is defined according to the Association of Superannuation Funds of Australia (ASFA) comfortable standard of living of $42,569 p.a. for a single and $58,444 p.a. for a couple.
The CommBank Retire Ready Index assumes a retirement age of 67 and includes the recently passed Age Pension asset test changes. When calculating adequacy for couples, Rice Warner has assumed for simplicity that couples consist of people with the same income and age cohort. In reality, there is likely to be a wider cohort distribution for couples.
The Financial Services Council defines retirement adequacy as 62.5 per cent of pre-retirement income. If this definition of retirement adequacy is used, retire readiness decreases with an increasing income.