Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 320

Off target: Mercer misses the mark on our retirement modelling

Grattan research has shown that the conventional wisdom that most Australians don’t save enough for retirement is wrong. The vast majority of retirees today and in future are likely to be financially comfortable. Our research seems to have come as a surprise to many retirement income researchers.

In a recent report, superannuation firm Mercer claimed Grattan’s retirement incomes research was ‘very misleading’ and was based on assumptions that were ‘not realistic’ for the average Australian. This Grattan policy paper shows that the Mercer critique of our work misses the mark.

A clarification on our approach

Some of Mercer’s claims result from an unfortunate misreading of our approach. Mercer mistakenly concludes that we model a decline in working-age incomes in the lead-up to retirement, when in fact incomes in our modelling peak just before retirement.

Mercer argues that retirement incomes should be assessed against the peak in earnings from ages 40 to 55, indexed forward by wages to age 67. But such a benchmark is 15% higher than Australians ever earn while working. It also ignores the fact that most Australians aged 40-55 are still incurring the costs of raising dependent children, whereas in retirement they are not. Spending by Australian households falls by about 15% between ages 45-49 and 60-64. Mercer’s work falls into the same trap as much Australian research on retirement incomes: it makes assumptions about what retirees need without looking closely at what they spend, or what they earn while working.

And Mercer’s preoccupation with ensuring all retirees, and especially wealthier retirees, are as well off in retirement as beforehand is a recipe for higher inheritances. Its approach would force low- and middle-income Australians to over-save for their retirement. Policy makers can justify lowering someone’s living standards during their working life only if they’re protecting them from even worse outcomes in retirement.

The real life experience

In contrast, our modelling is consistent with the lived experience of retirees today. Our 2018 Money in retirement report showed that most retirees today have a similar or higher living standard as they had while working. Most retirees today feel more comfortable financially than younger Australians who are still working. And retirees are less likely than working-age Australians to suffer financial stress such as not being able to pay a bill on time.

Retirement incomes policy needs to balance the trade-off between higher living standards when retired against lower living standards when working. And retirement modelling should reflect the reality of Australians’ spending needs, in retirement and beforehand. Unfortunately, Mercer’s critique of Grattan’s retirement research does neither.

 

Brendan Coates is a Fellow at Grattan Institute. This article is general information and not personal advice.

 

  •   20 August 2019
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

Australia's retirement system works brilliantly for some - but not all

The superannuation system has succeeded brilliantly at what it was designed to do: accumulate wealth during working lives. The next challenge is meeting members’ diverse needs in retirement. 

The 3 biggest residential property myths

I am a professional real estate investor who hears a lot of opinions rather than facts from so-called experts on the topic of property. Here are the largest myths when it comes to Australia’s biggest asset class.

Welcome to Firstlinks Edition 637 with weekend update

What should you do if you think this market is grossly overvalued? While it’s impossible to predict the future, it is possible to prepare, and here are three tips on how to best construct your portfolio for what’s ahead.

  • 13 November 2025

Latest Updates

Investment strategies

Australian stocks will crush housing over the next decade, 2025 edition

Two years ago, I wrote an article suggesting that the odds favoured ASX shares easily outperforming residential property over the next decade. Here’s an update on where things stand today.

Property versus shares - a practical guide for investors

I’ve been comparing property and shares for decades and while both have their place, the differences are stark. When tax, costs, and liquidity are weighed, property looks less compelling than its reputation suggests.

Investment strategies

What if Trump is right?

Trump may be right on two trends: nations are shifting from aspiration to essentials and from global dependence to self-reliance, pushing capital toward security, infrastructure, and energy.

Gold

After a stellar 2025, can gold shine again next year?

Gold has had a remarkable 2025, with the spot price likely to post its strongest return since 1971. This explores the key factors that will shape the outlook for the yellow metal next year, and long-term.

Superannuation

Critics of Commonwealth defined benefit schemes have it wrong

Critics like Clime's John Abernethy have questioned many aspects of defined benefit pensions for public servants. This is an attempted rebuttal, suggesting these pensions aren't the problem they're made out to be.

Infrastructure

Why airport stocks deserve a place in long-term portfolios

Aircraft constraints are holding back global air travel. Those constraints should soon ease which combined with a structural boom in travel demand could be a boon for global airport stocks.

Investment strategies

What is the future of search in the age of AI?

Search is changing fast. AI tools like ChatGPT and Google’s Gemini are reshaping how we find information, opening new opportunities for innovation, user engagement, and future revenue growth.

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.